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Tax changes cause for concern

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Proposed federal tax changes have some small business owners and farmers concerned and to help navigate the information, Dauphin and District Chamber of Commerce hosted a luncheon with Matt Bolley, tax specialist for MNP, Sept. 18.
“This affects everyone who is a small business owner. Whether you be a commercial, agriculture, professional, these rules affect you,” Bolley said.
MNP wants to get the word out on the changes, he noted, so Canadians have the opportunity to respond before the deadline of Oct. 2.
The proposed tax changes were released July 18, Bolley explained, and has a 75-day consultation period.
The consultation period is quite small, he noted, with a limited time to ensure taxpayer’s voices are heard.
At the luncheon, Bolley highlighted the three main areas the federal government is proposing to change.
The first is income sprinkling, he said, where the government is proposing to restrict the ability of corporations to sprinkle income amongst related shareholders.
“Currently you can pay dividends to any shareholder, providing they hold shares in the company,” Bolley said, noting with the proposed rules, the payment of dividends will be restricted to related parties of someone running a corporation, unless they are actually involved in running the business.
For example, he said, if an individual was paid a dividend of $50,000 and they were not involved in the business, it could be taxed at the highest marginal rate of approximately 46 per cent in Manitoba.
The second area of proposed changes is to increase the amount of tax payable by a corporation when it earns passive investment income.
Bolley explained it is when a corporation has earned business income and has paid its corporate rate of tax, then decided it does not need the money for the business and instead, invests it in stocks or bonds.
The government is proposing to increase the amount of total corporate taxes, as well.
The third area under the knife is to restrict capital gains treatment for related party transactions, he said, which may be a parent selling to a child or someone selling the business to a non arms-length party.
“Even transactions such as triggering capital gains by selling farm land into a corporation,” Bolley added.
“Pretty much any type of transaction that’s between non arms-length parties that results in capital gains to a corporation could be caught by these new rules.”
Bolley also wanted to inform those attending the luncheon that the rules are quite broad and as a result, may catch a lot of transactions that are either not being publicized or are transactions people might not think will be affected by the rules.
The timing of the meeting, he added, was to give anyone concerned with the proposed changes time to contact Members of Parliament.
“The government is kind of presenting this as a minor tweak,” Bolley said, adding he does not feel that is the case.
“When you read these changes, they’re the biggest wholesale changes to income tax, in my view, in 45 years.”
The last changes that affected the tax system as significantly, he noted, was when Pierre Trudeau was prime minister in 1972.
“And, just as an aside, in 1972 when those changes were brought out, the discussion began six years earlier and there was an actual formal commission that took these changes up,” Bolley said.
He stressed the new rules are just proposals and cautioned those who may be affected to not make any rash decisions.
Bolley feels there will be some changes the tax rules made, as a result of the proposals, but they may be different from what has been presented.
The consultation period ends, Oct. 2 and Bolley said MNP will have concrete ideas a few weeks after on the direction the government will take.
MNP has prepared a couple of example letters to send to MPs, he noted, which are available by contacting a local office.
Taxpayers may also offer feedback to fin.consultation.fin@canada.ca.
The website of MP Robert Sopuck has links to Liberal MPs, Bolley said, as well.

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M. A. Nyquist
REPORTER
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