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CMB MAGAZINE cmba-achc.ca fall 2017 | 27 We all expected some changes to the ways corporations "sprinkle" income and capital gains to family members, but nothing this drastic. ese rules essentially prohibit income being allocated to anyone who does not work full-time in a business, and eliminate all capital gains sprinkling to anyone other than the business's principals. When asked why the drastic shi, the Department continually refers to the same example where the employee who earns $220,000 annually pays approximately $80,000 in taxes (Ontario) and the small business owner who earns the same and "sprinkles" this income to his spouse and two children would only pay $44,000 in tax. e Department of Finance deems this unfair. What the Department has seemingly failed to consider – or just ignored, as they likely thought they had the proverbial political home run with this – is the following: the employee has job security, a medical plan, access to severance benefits and EI, doesn't employ anyone, has four weeks vacation, five sick days, three personal days, paid statutory holidays and likely other benefits – oh, and quite possibly a very nice pension plan to boot. e small business owner has none of these niceties and in addition likely has personal guarantees on his personal assets and does not have anyone subsidizing his retirement. Does this seem fair? But most importantly, the employee does not assume any risk while the small business owner risks his upfront capital and his family's future to try to work toward a better one. Isn't taking risk and growing small businesses the backbone of the Canadian economy? It seems to me I have heard that before; actually straight out of certain Liberal mouths … Removing these tax benefits removes a very large impetus for people to start their own businesses – why would someone take on an enormous risk if she is going to be taxed the same as someone who works 8-4 and doesn't even think about his job once he leaves? Doesn't this have the potential to be the biggest deterrent to entrepreneurship in our lifetime? e second major policy shi involves the taxation of passive investments held inside a private corporation. It is standard practice for business owners to use excess earnings for investment purposes to fund their retirement (see previous point; no one is funding a small business owner's retirement). e benefit of this is, because the corporate tax rates are lower than personal tax rates, the business owner ends up with a higher percentage of every dollar earned with which to invest. Given the risk assumed and the lack of a pension, I think most people would agree this is fair – the Department of Finance disagrees and wants to tax this income at a significantly higher rate. is will likely result in a staggering reduction in the amount of assets the small business owner has saved for retirement when that time comes. What bothers me about this is these business owners, who have played by the rules their whole lives and worked hard, now have to work longer, harder or raise their prices to achieve the same standard of living in retirement. Does this seem fair? In addition to small business owners, few taxpayers are hit as hard by these proposed changes as doctors, especially given that unlike the small business owner, doctors cannot raise their prices as they are bound by their respective provincial agreements. You might say, "Well, boo-hoo for the highly paid doctors." No. 1: there are a lot of doctors who don't make nearly as much as people think and I bet these people will rethink their position in a few years, when the doctor shortage is even more dire than it is now. I would also be remiss if I did not identify that the increased taxation will likely impact the ability of the small business owner to save money for a "rainy day" or impact their financial statement ratios, which could compromise their borrowing capacity as well. Both impacts could negatively affect a business's overall sustainability. And on top of what I feel is poor policy on many levels, I may be even more upset about the way the message has been delivered than the actual content of the proposals. Finance Minister Bill Morneau and Prime Minister Justin Trudeau have basically labelled many very honest taxpayers as "tax cheats". I think this is in very poor taste, but as time goes on, I am less and less surprised. As a final thought, I would like to dispel one of the myths you have been hearing over the past couple months. ese rules do not impact actual wealthy Canadians. It is once again the middle class who have to pay the piper.

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