Contentious tax changes may be pushed back over 'severe uncertainty'

Legislators are reportedly mulling provisions to delay income sprinkling until January 1, 2019

Contentious tax changes may be pushed back over 'severe uncertainty'

Arguments over controversial tax changes affecting small-business owners were recently reignited during a review of the government’s budget bill.

On Tuesday, business representatives warned senators of widespread confusion over federal tax changes seeking to limit income sprinkling, reported the Financial Post. In spite of the policy being introduced in January, many company owners remain uncertain about how the changes will apply to their businesses.

“There is a degree of anger on the part of small business owners, a degree of upset that hasn’t gone away yet,” Dan Kelly, president and CEO of the Canadian Federation of Independent Business, said to the Senate national finance committee. “There has been very little progress—virtually no progress—in the simplicity respecting the income splitting rules.”

Numerous representatives urged the Senate national finance committee to defer the introduction of income sprinkling, as well as ask for new exemptions. Citing the “bright-line” tests for income sprinkling, Kelly said there’s still a lack of clarity as small companies often don’t track the information required, such as the number of hours each family members work for the business each week.

“If you go and visit these business owners, they’ve got a rusty filing cabinet where they’re throwing every receipt and piece of paper that they possibly can, hoping to gosh that the CRA is not going to be knocking on the door anytime soon,” he said.

Trevin Stratton, chief economist at the Canadian Chamber of Commerce, said small firms currently face “severe uncertainty” in their tax preparation plans for next year. Bruce Ball of the Chartered Professional Accountants of Canada echoed the sentiment, saying the changes are “complex and difficult to apply in practice.”

Numerous senators told the Post they were mulling amendments to put off the introduction of income sprinkling provisions until Jan. 1, 2019, along with a change to exempt spouses of business owners from the tax.

Criticism of Ottawa’s small-business tax changes went from raging to simmering after the government scrapped its proposal to increase taxation on capital gains and introduced a $50,000 threshold on passive investments. Several business owners are still concerned over the possibility of stricter income-sprinkling limits creating an added tax burden on those with limited cash flows.

All of this has huge impacts and unintended consequences,” Ontario Medical Association President Nadia Alam said. “Income splitting becomes very impactful when business owners are the sole income earner.”


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