Finance Canada consultation: Tax planning using private corporations

CPA Canada will make a submission to government. If you have any comments on this issue, please share them with us. Check back here for updates on our approach and activity.

Update: September 20, 2017

Our organization, in conjunction with CPA Ontario, brought Canada’s finance minister directly to our members to discuss the government’s plans around the taxation of private corporations.

The Minister of Finance, Bill Morneau, spoke to CPAs attending The ONE National Conference on September 18, 2017. The Minister delivered keynote remarks, engaged in a dialogue with Joy Thomas, president and CEO, CPA Canada, and took questions from the audience.

The proposed changes could have significant impacts on private corporations of all sizes, their owners and families, and Canada’s economy overall. Given the scope and importance of these changes, CPA Canada believes it’s crucial to the public interest for the government to examine all the implications and alternatives before enacting any changes into law.

We encourage you to view the segment to gain an understanding of the government’s position, the profession’s concerns and how CPA Canada is committed to working in the public’s best interest.

Read a transcript of the Minister’s speech at The ONE. 

CPA Canada’s voice being heard

Here's a recap of some of the actions taken by CPA Canada:

  • In August, we called on the government to extend the consultation period to ensure that all of the concerns and potential impacts can be thoroughly researched and analyzed. Our request was in a letter to the Deputy Minister of Finance Canada.
  • Since the proposals’ release in July, we have had discussions with advisors in the Finance Minister’s office and in the Prime Minister’s office to convey some of the views and concerns we’re hearing from our members and our public interest concerns.
  • We have hosted meetings with tax practitioners, legal practitioners and other stakeholders to evaluate the proposals, identify potential concerns and develop recommendations.
  • We have stayed in communication and shared information with a coalition of stakeholders who have similar concerns about the proposals.
  • We invited CPA members to provide their comments to help inform our submission through the CPA Canada website.
  • We have been active in consultation events hosted by other national organizations, such as the Society for Trust and Estate Practitioners (on August 17) and the Canadian Tax Foundation (a conference on September 25).
  • We presented a webinar for members on September 12.
  • We are involved in two submissions that will be made to the government. The submission by the Joint Committee on Taxation of the Canadian Bar Association and CPA Canada will focus on the technical concerns of the proposals. CPA Canada’s submission will focus on the public interest concerns and tax policy considerations.

 The deadline for comments to Finance Canada is October 2, 2017.

 

 

Update: August 30, 2017

CPA Canada is preparing its response to Finance Canada’s consultation paper on proposed changes to tax planning using private corporations. The submission will assess the proposals from the perspective of the public interest. It will also be informed by the input we have received from CPAs who have raised concerns about the effects of the changes.

While the final text and recommendations are still subject to ongoing analysis and consultation, CPA Canada’s submission will stress the principles of simplicity, efficiency, and fairness in the tax system and focus on how the changes may affect the public interest goals of sustainable economic growth and competitiveness.

CPAs who wish to communicate their views directly to their federally elected representatives may find the following key points – which will be reflected in CPA Canada’s submission -- useful in supplementing their own views.

Sustainable economic growth and competitiveness

  • To support sustainable economic growth in the public interest, Canada’s tax system should reinforce our competitive position in the global economy and provide the proper incentives for business owners to take risks and invest in our economy.
  • The current proposals are significant tax policy changes which, if implemented, could act as a barrier to business investment and job creation by further raising the cost of doing business in Canada, threatening our competitive position in the long run.

Fairness

  • Fairness in the tax system is an essential principle that may not be improved as a result of the proposed changes, which will reach across taxpayers at all income levels.
  • These corporate structures and rules have been available for as long as 40 years in some cases, and are used by private corporations and businesses of all sizes. If the government is going to change tax policy, it should allow for a reasonable transition period and appropriate grandfathering.
  • A wide variety of business owners choose to structure their business through an incorporated entity for a number of reasons, including limitation of liability and tax incentives, in order to ensure their competitiveness and sustainability.
  • Family-owned businesses, middle-class Canadians and entrepreneurs striving to build Canada’s economy will be among those affected by these changes.

Simplicity

  • Adding further complexity to an already complex tax system in Canada, as these proposals may do, will work against tax simplification and its associated benefits for government, taxpayers and business.
  • A simpler and more efficient tax system would assist taxpayers with compliance, improve fairness and increase tax revenue collections that are necessary to support economic and social challenges.

Efficiency

  • Making ad hoc changes to long-standing legitimate tax structures, that are utilized by a wide array of businesses of all sizes and income levels, may not be an effective way to improve Canada’s tax system and it could lead to unintended outcomes and require further fixes.
  • These proposed tax changes will likely increase the tax and administrative costs of running a business, which could adversely impact the entrepreneurial drive.

In CPA Canada’s view, Canada’s tax system needs a comprehensive review to improve its simplicity, efficiency, fairness and competitiveness. By adding complexity and inefficiencies, these proposals may work against that goal. Further, they could undermine the government’s focus on building an entrepreneurial, knowledge-based, and innovation-driven economy.

In the public interest, CPA Canada has undertaken two recent actions. First, CPA Canada has brought views and concerns forward to the attention of the Finance Minister’s Office. Second, as previously mentioned, CPA Canada has called on the government to extend the consultation period to ensure that all of the concerns raised can be thoroughly researched and analyzed, and the potential impacts on Canadian businesses and individuals can be properly identified and estimated.

Reminder

The deadline for submissions to Finance Canada in response to the consultation paper is October 2, 2017. Finance Canada is receiving responses via email. CPA Canada continues to welcome your comments.

 

 

Update: August 22, 2017

The July 2017 paper  from Finance Canada and accompanying draft legislation set out proposals that would eliminate some commonly used tax planning strategies available to owners of private corporations.

These changes could have significant impacts on private companies of all sizes, their owners and families, and Canada’s economy overall. Given the scope of these changes, CPA Canada believes it’s crucial to the public interest for the government to examine all the implications and alternatives before enacting these proposals into law. Actions that CPA Canada is undertaking include:

  • requesting the government extend the 75-day consultation period beyond October 2, 2017 to allow adequate time for research, analysis and understanding of the proposals’ wide-ranging impacts
  • hosting meetings with tax practitioners, legal practitioners and other stakeholders to evaluate the proposals, identify potential concerns and develop solutions
  • inviting CPA members to provide their comments to help inform our submission
  • taking an active role in consultation events hosted by other national organizations, including the Society for Trust and Estate Practitioners and the Canadian Tax Foundation
  • supporting the Joint Committee on Taxation of the Canadian Bar Association and CPA Canada in the development of its submission to the consultation

These and other activities are helping CPA Canada to develop its response to Finance Canada’s consultation. In a detailed submission to the government, CPA Canada will assert the principles that any changes to tax policy in this area should be designed to ensure tax fairness for all taxpayers while avoiding undue complexity, and also to promote and support entrepreneurialism and competitiveness in Canada.

Further, tax policy changes of this magnitude should be developed with extensive consultation and collaboration with the tax community, Canadian businesses and other key stakeholders. Ideally, CPA Canada believes that instead of adding more complexity to the tax system with these changes, the government should consider them within a comprehensive, top-to-bottom review of Canada’s tax legislation.

If you have thoughts on the private corporation tax proposals that you’d like to share with CPA Canada for consideration, please email us with your ideas.

 

 

July 28, 2017

Following up on a 2017 federal budget commitment, the Department of Finance Canada has launched a public consultation process to review the use of tax planning strategies involving private corporations. 

We recognize that this is an issue of importance to members and to the Canadian public in general. As we consult with members and other stakeholders, our overriding consideration will be to ensure the public interest is served by Canada’s tax system.  

The Minister of Finance has stated that the “government is committed to increasing the fairness of the tax system, while ensuring that the system is competitive and supports growth.” CPA Canada believes that the consultation process must consider the issue from a wide array of perspectives, such as fairness, simplicity and efficiency. It must also ensure there are measures in place to encourage and support business creation and development for a stronger economy that benefits all Canadians.

CPA Canada will carefully review the government’s proposed changes and submit its views and recommendations to Finance Canada as part of this public consultation process. If you have any comments on the consultation document for our consideration, please submit your views to governmentconsultations@cpacanada.ca