Entrepreneurs split on passive investment tax changes

Around 500,000 small business owners could see negative impact

Entrepreneurs split on passive investment tax changes
Steve Randall
Small business owners are divided on the impact of the federal government’s proposed tax changes.

Forty-two percent of small business owners polled by Angus Reid Institute feels that the rules on passive investments will be bad news for them, while 43% believe there will be no impact.

The change would mean an additional tax on passive investment income held by businesses when that income is distributed as dividends.

However, on the question of fairness 55% say the changes to passive investments are unfair compared to 22% who disagree.

The impact on entrepreneurs of the proposed changes to ‘income sprinkling’ is less contentious with 63% expected no impact compared to 24% expecting a negative outcome.

The change would mean extending current rules that prohibit income splitting with minors to include all adults, and to introduce a “reasonableness test” to determine whether a family member or other acquaintance is making a legitimate contribution to the business.

There is a closer division on the fairness of income sprinkling changes; 36% say the proposals are fair and 44% disagree.

Those businesses with five or more employees are more likely to expect a negative impact from all proposed changes compared to smaller operations. Retailers and manufacturers lead the concern.

An overwhelming 84% of small business owners believe that those starting new businesses should get ongoing tax breaks to help offset financial risks but only 41% agree that doctors and other professionals who incorporate should be able to get the same tax benefits as other small businesses.

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