Tax Fairness in Canada

[BC_chick]

That sense of entitlement can bite them. I've seen one small businessperson who had set themselves up as a corporation who was writing off vehicle expenses, and when the CRA audited them, it disallowed the expenses, declared them a personal benefit, and hence personal income, and the owner got slapped with a nice big bill for the employment income and related costs. So yes, people do dirty dishonest things, but they also put themselves at great risk of being nailed, and quite often two or three years after the fact, and then they get the interest and penalties and interest on the penalties.

And the people on payroll who are enjoying the company car, the gas and the cell phone without the company reporting it on the employee's T4 are not at a risk because once again the employer is on the line for not reporting and withholding the taxes properly.

There are advantages and disadvantages on both sides.

[Accountability Now]

Or you hold it until you are in a lower tax bracket and pay yourself then.

Deferral. Still need the definition?

All advantages that the average joe doesn't get.

Not true. No ones stopping you from starting a company.

And don't give me the "help the economy" crap. Almost everything helps the economy. But if you seriously want to make the GDP spin faster, put it into the hands of people who will spend it locally - give your employees a raise.

Do you have the slightest clue about economy? The economy is based on investors. It revolves around people willing to invest their money back into the market thus creating jobs. Just the slightest thing can scare off an investor and cause them to keep their money in their pockets which results in no jobs....never mind raises. Of course, if an investor does go ahead and pour his/her money into a company and that company doesn't work out, you won't see the employee giving money back to the team...now do you?

Go back and re-read your own words. You said there had to be some benefit to owning a business, as if it wouldn't be worth it if you had to pay the same taxes as everyone else.

I also JUST said that your claim about business owners start business to build something and my claim that there needs to be incentives both CAN be true. One does not negate the other.Please try to keep up.

So, that's 2 benefits. You get to invest the money that for other people would have been paid in taxes. And you can choose to pay yourself at a time when you are in a lower tax bracket. Or are you someone who is wealthy enough that you will never be in a lower tax bracket? If that's the case you can choose to pay your kids... or your grand kids.

Face palm!!! Do you know the very nature of investments. Some work and some don't. So yes...when you risk your money and it pays off, then you get a reward. If it doesn't pay off then you are shit out of luck.

As for your comment about paying kids and grandkids, that was a loophole used in the 90s and closed off in 2000 with the "kiddie tax" rule. Parents can still give their kids dividends however if they do they are automatically assessed the highest marginal tax rates. Hence most people don't do this anymore.

And this really isn't about you

Really? Then why your smug comment :

I think what you mean to say is that it works to your benefit.

So.... instead of making the system fair, you think everyone should take advantage of it?

The system is fair or attempts to be fair and will correct itself when it finds ways that its not. Just because that system requires you to get off your butt and do something rather than having it handed to you does not make it unfair.

[Accountability Now]

The problem is with the ones who think they are being honest when they are really not - the hypocrites.

These people actually exist and have a sense of entitlement as if it is reasonable for them to deduct certain expenses because it is obviously for business purposes etc...

Exactly!!!

[Accountability Now]

Now...if we want to talk fair....over the past number of years I have averaged about $150,000 per year that I have paid in taxes (company and personal). Most people pay about $15,000. So I have paid 10x the taxes even though I get the same services, use the same roads, same schools, same hospitals, etc.

[ToadBrother]

Now...if we want to talk fair....over the past number of years I have averaged about $150,000 per year that I have paid in taxes (company and personal). Most people pay about $15,000. So I have paid 10x the taxes even though I get the same services, use the same roads, same schools, same hospitals, etc.

What is it exactly you're asking for? Special roads just for you?

[ReeferMadness]

Deferral. Still need the definition?

Deferral allows you to take the money you should have paid in taxes, invest it for a profit and then pay less taxes later when you're in a lower tax bracket. I think we we all get it.

Not true. No ones stopping you from starting a company.

Or they could just make the system fair.

Do you have the slightest clue about economy? The economy is based on investors. It revolves around people willing to invest their money back into the market thus creating jobs. Just the slightest thing can scare off an investor and cause them to keep their money in their pockets which results in no jobs....never mind raises. Of course, if an investor does go ahead and pour his/her money into a company and that company doesn't work out, you won't see the employee giving money back to the team...now do you?

And yet... somehow a decade and a half of aggressive tax cutting has only resulted in corporations hoarding more cash. And the economy grows ever more slowly.

Maybe you and Harper should go back to school and learn how it really works.

I also JUST said that your claim about business owners start business to build something and my claim that there needs to be incentives both CAN be true. One does not negate the other.Please try to keep up.

Your original statement didn't say anything about this. It said there should be some benefit to owning a business. As if the huge income and all this other crap weren't enough.

As for your comment about paying kids and grandkids, that was a loophole used in the 90s and closed off in 2000 with the "kiddie tax" rule. Parents can still give their kids dividends however if they do they are automatically assessed the highest marginal tax rates. Hence most people don't do this anymore.

And for every rule, there are 10 more loopholes. That kiddy tax only applies to minor children, not grown-ups. And there are other ways of working the system.

The system is fair or attempts to be fair and will correct itself when it finds ways that its not. Just because that system requires you to get off your butt and do something rather than having it handed to you does not make it unfair.

The system is working well for you so of course you can convince yourself it's fair. Not many people are as honest as msj.

As Upton Sinclair put it "It is difficult to get a man to understand something, when his salary depends on his not understanding it."

[Accountability Now]

What is it exactly you're asking for? Special roads just for you?

Nope. Just that when one asks for fairness that we consider what is actually fair. Should I be paying an even higher tax rate even though I pay almost 10x the tax than the average guy just because I can afford it? Its not like I get special roads or anything like that.

[BC_chick]

Nope. Just that when one asks for fairness that we consider what is actually fair. Should I be paying an even higher tax rate even though I pay almost 10x the tax than the average guy just because I can afford it? Its not like I get special roads or anything like that.

Reefermadness is asking a legitimate question about whether or not it's fair that business owners should be allowed so many advantages and tax loopholes. I agree with many of the psoters that there should be some advantages, but there is no question that the discrepancy is too much and should be narrowed down a bit.

What you're saying is completely irrelevant to this subject. Many people on payroll pay enormous amounts of tax as well and they don't ask for more public services.

Maybe you can start a thread on it though.

[TimG]

Or they could just make the system fair.

You have not established that the system, as it stands, is unfair. The trouble with people like you is you think that it is possible to design a system that is 'perfectly fair' according to everyone's definition. No matter what change you make you will create unfairness. The question is what amount of unfairness is good enough.

The CRA has done a good job of eliminating all of the ridiculous loopholes and what we are left with are things that can't really be changed without effectively eliminating the concept of a corporation.

[msj]

So what specifically do you think should be changed?

No need to lower the small business tax rate to start.

Hire more auditors and go after the following industries: restaurant/servers (do both the restaurant and servers at the same time), construction, O&G "consultants."

Nail them for not reporting income and/or for operating as PSB's but paying tax at the active CCPC rates.

Focus in on shareholder loan balances within companies - particularly the timing of withdrawals and contributions and their relation to the declaration of wages (people are not paying payroll deductions at the proper points in time).

Focus in, for all businesses, on vehicle expenses and business use of home which people abuse far too much.

IOW: go for the low hanging fruit.

There are many many other areas where changes could be made but that is beyond the scope of this thread and likely beyond the scope of laypeople's understanding and I would rather save it for a Royal Commission which is what we really need.

[TimG]

I agree with many of the psoters that there should be some advantages, but there is no question that the discrepancy is too much and should be narrowed down a bit

This sounds like a platitude. Define 'too much'? Who gets to decide?

[Moonbox]

Define 'significant'. 10? 100? 1000? Where is the evidence to support whatever number you pluck out of your head?

The nature of that question sort of precludes any sort of real answer. You're asking him to provide evidence of all of the people who are "abusing" the self-employed taxation system and not getting caught. The fact that they're not getting caught means that there's not going to be any evidence to provide. Any sort of discussion around this, therefore, is going to be heavily anecdotal. Unless you're in a position to be regularly looking at self-employed tax returns, you're unlikely to know how silly it can get. CRA knows, but they have to make best use of available resources....resources that the government was planning to (or already has) cut.

Who says you get to decide what benefits the business? The fact is the shareholders are only people who can decide what is good for the business or not.

Perhaps, but a lot of the time the shareholders are the ones operating the business, making the claims and potentially doing a lot of the book keeping. Their interpretations of what's good for the company vs what's good for them personally is thus (I put this generously) very muddy.

The only thing the CRA needs to concern itself with is that any personal benefit from corporate activities is properly taxed and the CRA has many rules designed to ensure that happens.

They also have to concern themselves with investigating the claims and enforcing the rules. As the current system stands, the CRA doesn't have the resources to do either. As I've said before, they have to direct their attention where it will be best spent. BS expense claims for small businesses aren't usually that high on the priority list. Unless you piss off your ex-wife and you're not a total idiot about it, you can get away with A LOT.

Edited September 11, 2015 by Moonbox

[Accountability Now]

Deferral allows you to take the money you should have paid in taxes, invest it for a profit and then pay less taxes later when you're in a lower tax bracket. I think we we all get it.

Investment still involves risks. So no you don't get it. Not to mention, that drawing out your money over that amount of time assumes that you don't have any other money coming in. Most business will make an annual dividend and can only draw it out so long before they flush it out at the higher tax rates.

Or they could just make the system fair.

The system is fair. You just don't have a clue how to use it.

And yet... somehow a decade and a half of aggressive tax cutting has only resulted in corporations hoarding more cash. And the economy grows ever more slowly.

The economy in Canada has grown steadily with the exception of major recessions. With that said, you do know why recessions happen? Investors get nervous and stop investing.

Your original statement didn't say anything about this. It said there should be some benefit to owning a business.

My original statement said there should be benefits as an incentive. You then created the strawman saying that the incentive was to build something meaningful as if it had to be one or the other. I came back and asked why it can't be both. You have yet to answer.

As if the huge income and all this other crap weren't enough.

Lol. Its just so easy in your mind...isn't it. Of course you just forget that it isn't

http://www.forbes.com/sites/ericwagner/2013/09/12/five-reasons-8-out-of-10-businesses-fail/

According to Bloomberg, 8 out of 10 entrepreneurs who start businesses fail within the first 18 months. A whopping 80% crash and burn.

So when a business does succeed and makes as you say huge income then good on them!

And for every rule, there are 10 more loopholes. That kiddy tax only applies to minor children, not grown-ups. And there are other ways of working the system.

You are the one yammering on about people using kids and grandkids when its just not true. Now that I have shown you the door on that argument you want to start talking about 10 more loopholes. Have at it.

The system is working well for you so of course you can convince yourself it's fair. Not many people are as honest as msj.

Even msj said that the majority of people he deals with are honest and use the system correctly. The others we all agree are not but that doesn't mean the system is wrong it means they are.

As Upton Sinclair put it "It is difficult to get a man to understand something, when his salary depends on his not understanding it."

Which is probably why you are the one pissing and moaning about 'fairness'.

[TimG]

IOW: go for the low hanging fruit.

Seems like you are saying that we start by enforcing the rules that already exist. Edited September 11, 2015 by TimG

[BC_chick]

This sounds like a platitude. Define 'too much'? Who gets to decide?

I did. For my example I gave the ridiculously low maximums for RRSP, they are a joke. Payroll people should be given more tax-shelters to even the playing ground.

Business owners are needed because they provide jobs and payroll employees are equally needed to make that business run. It's an interdependent relationship.

[msj]

Seems like you are saying that we just need to enforce the rules that already exist.

To a large extent - yes.

And eliminate the deduction for options as I already posted about a few pages back.

And tax capital gains at 75% or 100% of the gain rather than 50%.

Etc etc... too big a topic for here.

[TimG]

I did. For my example I gave the ridiculously low maximums for RRSP, they are a joke. Payroll people should be given more tax-shelters to even the playing ground.

I would make get rid of the limit tied to income and instead allow people to contribute up to a max each year (like TFSA). I think there still needs to be a max.

[ReeferMadness]

I know there has been a lot of conflating corporations/self-proprietors/professionals on this thread and I agree, there is a distinction.

However, even in the case of the professions you mentioned there is a reason they can conduct themselves as a business. Accountants, doctors and consultants work for various clients many of whom do not have a payroll number to withhold the taxes and submit to CRA.

Once the line is drawn that this profession can carry on as a business, then the expenses come into it. You can't write-off a home office unless you work there more than 50% of the time and/or you see clients on a regular basis there. You also need to have a separate part of the house designated for it. Same thing goes for meals and entertainment as well car-expenses. If the amount you are claiming is unreasonable, it's a red-flag and trigger an audit. A good accountant would not allow his/her client to be unreasonable in their claims.

I get what you're saying and I know that CRA does fiddle with the rules when loopholes cutting into revenue is a big way. There is no one set of rules that will satisfy everyone.

However, I would still maintain that the current rules allow too much room for interpretation and abuse. And I don't think this is just a cosmic accident. Small and medium business owners are often the people who cut cheques to the Conservatives for a thousand bucks.

As for the 'fairness factor' on the flip-side, these professions do not get vacation-pay, they are not protected under Employment Standards and without that protection there is still a bigger *risk* than working 9-5.

Then there's EI and mat-leave - I'm self-employed and anything I may have gained over the years in writing-off a few expenses here and there was peanuts to the money I didn't receive when I had to take mat-leave. My daughter is school-age now and I still shudder at the fact that I could've stayed home for 1 year and collected 60% of my pay and that very fact played a huge role in me not having another kid. It's give and take.

I would say two things.

First, I'm not sure what you do but in my world (IT), it's common for contractors to make $90 - $150 per hour. Out of that, they pay the middle man company (another cottage industry designed to legitimize what are really short term employees) $10-$15 per hour. The difference between what they make and what employees earn more than makes up for vacation pay, EI and benefits

In terms of risk, there still is more job security being an employee but not as much as you might think. I've seen lots of contractors hang on for years and companies dump staff (particularly middle management) so readily these days that the difference is not as big as you might think.

And in terms of employee standards, where I've worked, contractors are treated almost exactly the same as employees - with two differences.

1. Unlike salaried employees, contractors get paid for every hour worked.
2. When contractors are terminated, they aren't entitled to severance, although the standard contract allows for 2 weeks notice.

[BC_chick]

I would make get rid of the limit tied to income and instead allow people to contribute up to a max each year (like TFSA). I think there still needs to be a max.

Fair. I also think msj had some good suggestions. Business owners often cheat because they know they can. They would be more honest if there was more uncertainty that they'd get away with it.

[msj]

They also have to concern themselves with investigating the claims and enforcing the rules. As the current system stands, the CRA doesn't have the resources to do either.

As the system stands now the CRA don't have the resources to issue a Notice of Assessment for a simple tax return in a quick and efficient manner.

Service levels are criminally bad - 18 months to get a response for a fairness request. Then another 18+ months to get a ruling on it.

That is exactly what the Harper Government of Canada has given us over the past 5 years and is a big part of why I can't stand them.

[Accountability Now]

Reefermadness is asking a legitimate question about whether or not it's fair that business owners should be allowed so many advantages and tax loopholes. I agree with many of the psoters that there should be some advantages, but there is no question that the discrepancy is too much and should be narrowed down a bit.

First off, he started with an article in 2012 that talks about a dividend tax credit which the Budget of 2013 was to adjust the gross up rates for dividends. Again...the system is fluid, it moves to correct itself when needed.

Second, he has claimed that there are many advantages but yet he has failed to illustrate 'many'. Of the few he has, he also fails to acknowledge the risks involved in having a business and the need for such incentives

What you're saying is completely irrelevant to this subject. Many people on payroll pay enormous amounts of tax as well and they don't ask for more public services.

Maybe you can start a thread on it though.

Irrelevant? Hell no. The thread is about tax fairness and no where did I ask for MORE public service. I said that I receive the same services even though I pay 10x the amount of taxes as the average person. As such, that is a question about tax fairness which is EXACTLY what this thread was about.

Sorry it may not fit the narrative that you wish but the whole purpose of a discussion is to have both sides...not just yours.

[Accountability Now]

Small and medium business owners are often the people who cut cheques to the Conservatives for a thousand bucks.

Citation request.

[Accountability Now]

That is exactly what the Harper Government of Canada has given us over the past 5 years and is a big part of why I can't stand them.

Are you saying that other governments have offered a more efficient method? To me government has always been slow.

[SpankyMcFarland]

It's actually Mr. Cooper. It seems like he is very elderly and perhaps no longer able to look after his own affairs. CBC interviewed his son Marshall Cooper who pleaded ignorance of Canadian tax laws. He said he went to the experts so it's their fault if there's a problem.

Which totally makes sense. Why wouldn't it be totally legitimate for him to be receiving millions of dollars and pay not tax?

Sorry, Cooper. Marshall sounds like a surname. Yes, the probability that young Mr. Cooper was entirely ignorant of the family trust and tax arrangements is kinda small. Given that this case involves KPMG, Canada and rich people, we may have to wait a while for any justice to trickle down.

And I can't blame Steve alone. The Libs are at least as much to blame for guys like this.

[SpankyMcFarland]

I don't mind genuine entrepreneurs getting tax breaks but the professional corporation often does not contain anybody like that.