Prime Minister Justin Trudeau has vowed to push ahead with his government’s plans for tax reform despite widespread condemnation from business groups and opposition politicians.
Saying he “will make no apologies” for the Liberal Government’s controversial plan to close loopholes that it says give small-business owners an unfair tax advantage, Prime Minister Trudeau dismissed a growing chorus of criticism from a coalition of more than 40 industry associations that include tax professionals, doctors and engineers. The opposition Conservative Party of Canada, and its recently elected leader Andrew Scheer, have said they will make the proposed tax reforms the main issue when Parliament resumes for its fall session in October.
“These are good people, hardworking people, these are honest people who are being demonized by Justin Trudeau's Liberals just to pay for their out-of-control spending," Mr. Scheer said, referring to Canadian small-business owners.
The most contentious element of the proposed tax reform involves a three-part plan to eliminate tax loopholes. One change seeks to eliminate an incentive that enables small-business owners to use their corporations as a way to shift income to family members who face lower personal tax rates. Federal officials in Ottawa call this “income sprinkling” and say stopping the practice will provide $250 million a year in additional federal revenues.
Another change would limit the use of private corporations to make passive investments in stocks or real estate, and a third reform would limit the ability to convert a corporation's regular income into capital gains, which are typically taxed at a lower rate. Prime Minister Trudeau has said the changes are aimed at creating more fairness within the tax system. Mr. Scheer has called the proposals a “cash grab.”
While the Prime Minister has struck a defiant tone on the issue, his cabinet colleagues have struck a more conciliatory tone on the proposed tax reforms. Finance Minister Bill Morneau, who would be responsible for implementing any changes to the tax system, has said that the federal government is open to adjustments to avoid unintended consequences.
“We're consulting about closing unfair loopholes. We will NOT raise taxes on small business,” Minister Morneau wrote on Twitter last week in a series of tweets that he began with the phrase “To clear some things up.”
