No more pretending that family meal is on the clock.
What the new ‘income sprinkling’ rules mean for tax planning
This week the federal government announced a proposal to close tax loopholes it says will stop rich people from “gaining tax advantages that are not available to other Canadians.”
The language will sound familiar to anyone who followed the Liberals during the election campaign. Even the relatively dry discussion paper
the finance department released makes repeated mentions of “strengthening the middle class.”
The government now plans to consult on the issue until Oct. 2. Here’s how the proposed changes will work.
The government says it’s trying to fix three issues with the tax code. First, it will try to put a stop to “income sprinkling,” where money is transferred from a family member in a high tax bracket to one in a lower bracket, via wages in a corporation. Tax officials will have the difficult task of distinguishing between actual income based on a family member’s contribution to the business and money that is paid to avoid taxes.
The government also wants to stop people reaping the benefits of investing through a corporation. Income in a business is taxed at a lower rate than personal income so, although investments are taxed similarly, there would be more money to invest by keeping it in the business. The new proposals try to walk a tightrope between encouraging business owners to actively invest in the company and killing the advantages of investing passively inside a corporation.
Kevin Milligan, a UBC economist who has advised the government on tax policy, wrote that $27 billion in passive income was earned
through small business corporations in 2015, “so this is not a trivial issue.”
The third proposal is more complicated and tackles a less-common practice: It tries to stop people from funnelling income through several corporations in order to pay the capital gains tax rate, instead of the personal income rate.
Everything you need to know about income sprinkling and how it will affect you | National Post
What the new ‘income sprinkling’ rules mean for tax planning
This week the federal government announced a proposal to close tax loopholes it says will stop rich people from “gaining tax advantages that are not available to other Canadians.”
The language will sound familiar to anyone who followed the Liberals during the election campaign. Even the relatively dry discussion paper
the finance department released makes repeated mentions of “strengthening the middle class.”
The government now plans to consult on the issue until Oct. 2. Here’s how the proposed changes will work.
The government says it’s trying to fix three issues with the tax code. First, it will try to put a stop to “income sprinkling,” where money is transferred from a family member in a high tax bracket to one in a lower bracket, via wages in a corporation. Tax officials will have the difficult task of distinguishing between actual income based on a family member’s contribution to the business and money that is paid to avoid taxes.
The government also wants to stop people reaping the benefits of investing through a corporation. Income in a business is taxed at a lower rate than personal income so, although investments are taxed similarly, there would be more money to invest by keeping it in the business. The new proposals try to walk a tightrope between encouraging business owners to actively invest in the company and killing the advantages of investing passively inside a corporation.
Kevin Milligan, a UBC economist who has advised the government on tax policy, wrote that $27 billion in passive income was earned
through small business corporations in 2015, “so this is not a trivial issue.”
The third proposal is more complicated and tackles a less-common practice: It tries to stop people from funnelling income through several corporations in order to pay the capital gains tax rate, instead of the personal income rate.
Everything you need to know about income sprinkling and how it will affect you | National Post
