The Canadian government is considering changes that may have legal and taxation consequences for those who own their own businesses. As with any new policy, understanding the proposed changes and their implications is important for employers across Alberta. There are three changes currently being consulted by the Canadian government, all of which will have implications for small and large business owners alike.
The first change is designed to curtail something referred to as income sprinkling. This refers to the taxation practice that allows business owners to shift a portion of income to family members. This is typically done through salaries and dividends. The Canadian government wishes to prevent this unless family members can prove they are contributing to the organization and earning this salary.
The second change is to curb passive investment income. This will prevent people with corporations to make investments intended for personal growth through their companies. Currently, business owners can access lower tax rates by making investments through a corporation instead of personal accounts.
The third change will convert a corporation’s regular income into capital gains. This is less controversial as it means a lower tax rate in most cases. The other two could lead to a higher tax bill for many people across Alberta and the rest of Canada.
Advocacy groups and individuals are currently voicing their opinions on the new regulations as the federal government discusses possible implementation. Regulations like these can impact business practices, especially around tax time. Consulting a local Calgary, Alberta lawyer can help people stay updated on changes like these and suggest how they may effect an individual business.
Source: CBC News, “Small business owners say they are unfairly targeted by proposed tax changes“, Kate MacNamara, Aug 13, 2017