UC Observer logo
UCObserver on SoundCloud UCObserver on YouTube UCObserver on Facebook UCObserver on Twitter UCObserver's RSS Feeds
Finance Minister Bill Morneau. Photo by Art Babych

Hysterical about taxes

Closing up loopholes is hardly a ‘class war’

By Dennis Gruending


Finance Minister Bill Morneau recently announced that he wants to close up existing tax loopholes. Currently, highly paid professionals are able to reduce their taxes by incorporating and, then, using various small business tax breaks to shelter their income. Although Morneau argues that he wants to create a tax system that is fairer, some of the reaction to his reform has been hysterical to say the least. 

The National Post described it as a “class war.” In The Globe and Mail, an economist for a money management firm wrote that the planned changes could create a recession.  And predictably, the Canadian Federation of Independent Business (CFIB) described it as an unfair attack on small business. Meanwhile, the Canadian Medical Association (CMA) has warned that many of its incorporated members might move to the U.S. As parliament began to sit again earlier in September, an airplane hired by the Canadian Taxpayers Federation (CTF) even circled in the skies above Parliament Hill, pulling a banner that read “No Small Biz Tax Hike.”

The rush by highly paid individuals to incorporate has its roots in the Harper government’s dramatic reductions of the small business tax rate — from 19 percent to a planned nine percent. The Liberals, after being elected in 2015, froze the federal rate at 10.5 per cent, however. That means that a professional earning $200,000 a year now pays perhaps 12 or 13 percent in small business taxes once both federal and provincial jurisdictions are taken into account. That same individual would likely pay close to 50 percent on income if unincorporated.

In theory, the incorporated individual would pay the going personal tax rate on money kept in the company whenever it’s taken out as income. Nevertheless, small business corporations have found ways around that. One such method is called “sprinkling,” which involves having the business pay salaries to children and spouses who are in a lower tax bracket and who, in many cases, don’t work for the corporation. Another method is to convert income, held in the corporation, into capital gains — much of which is exempt from taxation. The remainder then draws much less tax than personal income does.

Of course, the broader question — which appears to be of no interest to the business lobby — is how an unfair tax system promotes inequality in Canadian society. One example is the offshore tax havens being used by wealthy Canadians to hide money and avoid paying tax. One estimate puts the figure of forgone tax revenues at $6 billion. If the CMA, the CFIB or the CTF have ever made any bold statements decrying this method of tax avoidance, I must have missed them.    

What’s more, the business lobby routinely fights any proposals to raise the minimum wage, as it is now doing in Ontario. The CFIB also opposed measures to improve the modest benefits available to workers under the Canada Pension Plan, which is funded by contributions from both workers and their employers.

So it’s rather interesting how some people consider the closing of tax loopholes to be class warfare. Yet hiding billions in off-shore tax havens and opposing minimum wage hikes merits no such description.    



Author's photo
Dennis Gruending is an Ottawa-based author, blogger and a former Member of Parliament. His work will appear on the second and fourth Thursday of the month. His Pulpit and Politics blog can be found at www.dennisgruending.ca.
Readers’ advisory: The discussion below is moderated by The UC Observer and facilitated by Intense Debate (ID), an online commentary system. The Observer reserves the right to edit or reject any comment it deems to be inappropriate. Approved comments may be further edited for length, clarity and accuracy, and published in the print edition of the magazine. Please note: readers do not need to sign up with ID to post their comments on ucobserver.org. We require only your user name and e-mail address. Your comments will be posted from Monday to Friday between 9:30 a.m. and 5:30 p.m. Join the discussion today!
Promotional Image

Editorials

David Wilson%

Observations

by David Wilson

Outrage is the new normal

Promotional Image

Video

ObserverDocs: A Tale of Two Cancers

by Observer Staff

Catherine Gordon's October 2017 feature for The Observer, 'A tale of two cancers,' recently caught the eye of U.S. Senator Bernie Sanders and his Washington, D.C.-based team, and inspired a short documentary. Gordon talks about the experience of writing the article and participating in the film.

Promotional Image

Profiles

October 2017

Fall from grace

by Justin Dallaire

Don Hume was a United Church minister nearing retirement. Then he tried crack cocaine.

Faith

September 2017

Yearning

by Jane Dawson

Restless longing is at the core of the human condition, urging us onward through life. What happens when it veers off course?

Society

July 2017

From far and wide

by Various Writers

Meet 11 immigrants who are putting down new roots

Faith

October 2017

A tale of two cancers

by Catherine Gordon

One year after the writer discovered she had breast cancer, her sister in California received the same diagnosis. They both recovered, but their experiences were worlds apart.

World

June 2017

Resisting genocide

by Sally Armstrong

In August 2014, ISIS attacked Iraq’s Yazidis, slaughtering thousands and forcing women and girls into sexual slavery. Today, the survivors are fighting for their ancient way of life.

Society

April 2017

Dear Grandkids

by Various Writers

Six acclaimed Canadian authors write letters from the heart

Promotional Image