Proposed tax changes in both the US and Canada could lure business owning clients south, according to BDO Canada.
As Washington works through the final version of President Donald Trump’s flagship tax cuts, Canada’s Finance Minister Bill Morneau on Wednesday clarified planned changes to small businesses tax in a bid to reduce their ability to pay less through “income sprinkling”.
Dan Lundenberg, Partner and Leader for US Corporate Tax Services at BDO Canada, said the perception that the US is more “open for business” may mean entrepreneurs and investors view the changes as an opportunity.
“Currently the US tax rate is a bit lower,” he said. “But if tax reform goes through, the tax-rate reduction will be greater and if the US is successful in getting rid of the estate tax, entrepreneurs will have less reason to fear moving to the US to do business.
“The impetus behind tax reform is to make the US more attractive. There’s a whole bunch of changes and so tax is one part of the equation. There are other parts – access to healthcare, how much it costs, things like that - but from a tax perspective, if you are looking to compare an entrepreneur setting up shop and living in the US versus setting up shop and living in Canada, the tax differential will grow significantly if tax reform passes, unless Canada decides to reduce taxes.”
With Trump’s tax reform set to provide a boost to the US economy and stock markets, advisors will be alive to funnelling more of their clients’ money in that direction.
Lundenberg believes that despite the President’s often turbulent reign, the US political system offers businesses the stability they crave.
He said: “If a Canadian company is looking for a capital expansion and tax reform goes through, then that would be a pretty big incentive to do that capital expansion in the US because in addition to lower tax rates, there is provision that allows for the immediate expensing of capital property acquisitions and improvements over the five years after tax reform is passed.
“Entrepreneurs do not like instability, they like stability. But once something is passed in the US, it’s hard to ‘unpass’ it. The President learnt in terms of undoing healthcare that although healthcare isn’t very popular, it became more popular when he proposed to take it away.
He added: “But the tax reform Trump is proposing is pretty expansive. It’s the first time since 1986 the US is looking to revamp its tax system and the chance of it being undone in the future is slim.”
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