Tax Fairness in Canada

[msj]

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

They are at least 3 times slower now than they were many years ago.

I requested a ruling for the status of a client re: residency. What used to take 2 months took over 6.

They do far too many stupid things which are beyond the scope of this topic.

[msj]

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

This is a common complaint I hear.

But why shouldn't a lawyer or accountant or realtor have access to the same tax deferral as the fishing company or retailer or computer consultant etc?

We have customers just like they do.

We make money by selling services just like they do (or they sell products - depends on the business).

As to liability - we are still personally on the hook for any professional errors and omissions so that's not a good reason either.

[Accountability Now]

They are at least 3 times slower now than they were many years ago.

I requested a ruling for the status of a client re: residency. What used to take 2 months took over 6.

They do far too many stupid things which are beyond the scope of this topic.

Interesting. I didn't start my business until 2006 so I have only had the one government to work under. I do have to admit its been nice from the decreased taxation but I don't often get involved in other paperwork issues.

[ReeferMadness]

I requested a ruling for the status of a client re: residency. What used to take 2 months took over 6.

Well, that's easy. Harper personally decided that to be a resident, you only need to own $4,000 worth of property. So, tell your clients to buy a time share in a pig barn and tell CRA if it's good enough for the senate, it should be good enough for them.

[ReeferMadness]

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

See? That's what I like about you and Tim. If you can't argue with what I said, you just pretend I said something completely different and argue with that. Let's replay what I actually said about business and the need for incentives:

Businesses have a legitimate need to hire staff, defer income to lean years, invest income and conduct activities that merit special tax code treatment. The problem is when business owners use these activities in ways that don't really benefit the business but are used to put themselves in advantageous positions from a tax standpoint. It can be really difficult from an auditing standpoint to differentiate in many circumstances.

I know, I know. It's so much harder to argue with that.

[ReeferMadness]

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.

That's a fair statement. The Chretien Liberals received a lot of money from businesses and wealthy people and were reluctant to rock the boat.

Which is why I was quite impressed that Justin was willing to stick his neck out and call attention to how some small business owners misuse the tax regime. If there is one thing that all of the parties seem to universally agree on it's that small business owners are heroes. There's been a whole mythology built up around them.

And don't get me wrong - I think some of them are heroes. Just not all of them.

Edited to add: And even the ones that are heroes don't necessarily need all of the tax advantages they get.

Edited September 11, 2015 by ReeferMadness

[Argus]

You're missing the point. A person who has a job and makes the same amount will pay thousands of dollars in income tax. This thread isn't about the definition of wealth, it's about tax fairness.

How much tax you make depends on how many deductions you can claim, which means families pay far lower taxes than single people because all the deductions are aimed at them. I bet you aren't upset about that.

[Accountability Now]

See? That's what I like about you and Tim. If you can't argue with what I said, you just pretend I said something completely different and argue with that. Let's replay what I actually said about business and the need for incentives:

Ah...so you chose not to say it in our conversation but hide it in a side post. With said, directly from our conversation I initially said that businesses require such incentives for which you responded with:

And whenever a business owner talks publicly about his business, you always hear of him saying how he's proud of building something and he has this vision of what he wants his business to be. Are you saying that's all crap?

Any mention of agreeing to the idea of incentives....NOPE. Oh wait...you did go on to say this gem:

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.

So where in what you said to me did you actually acknowledge incentives are needed? Is that what you meant by the 'other crap"? If so, I don't think other crap is a proper synonym for incentives.

[msj]

And don't get me wrong - I think some of them are heroes. Just not all of them.

Edited to add: And even the ones that are heroes don't necessarily need all of the tax advantages they get.

You have a different definition of hero than I do.

[Argus]

d

Edited September 11, 2015 by Argus

[ReeferMadness]

You have a different definition of hero than I do.

Not sure what you mean by that...

[Argus]

Do people make $200K a year in tips?

Strippers might...

[msj]

Not sure what you mean by that...

If someone puts them self at personal risk to save the life of someone else would qualify, imo.

Someone who is running a business because they enjoy it, and/or because it gives them certain freedoms by doing the work they want to do and when they want to do it, and/or because they can make lots of money at it?

That's nothing special.

Sure, there is risk going into business. There is risk doing many things.

But the rewards are many without handing out unnecessary tax breaks such as the proposed cuts.

[Accountability Now]

If someone puts them self at personal risk to save the life of someone else would qualify, imo.

Someone who is running a business because they enjoy it, and/or because it gives them certain freedoms by doing the work they want to do and when they want to do it, and/or because they can make lots of money at it?

That's nothing special.

I agree. The two are not in the same category and can't be compared apples to apples.

Sure, there is risk going into business. There is risk doing many things.

Like I posted, 80% of small businesses don't make it past 18 months. I think that is more of a risk than just taking a job at the plant. My point being its relative.

But the rewards are many without handing out unnecessary tax breaks such as the proposed cuts.

The incentives need to be constantly evaluated and added or decreased where necessary. If the economy is shrinking, which it appears to be the case then incentives are required. Having said that, the incentives should never be unrealistic as there are rewards as you suggest.

[ReeferMadness]

If someone puts them self at personal risk to save the life of someone else would qualify, imo.

Someone who is running a business because they enjoy it, and/or because it gives them certain freedoms by doing the work they want to do and when they want to do it, and/or because they can make lots of money at it?

That's nothing special.

Sure, there is risk going into business. There is risk doing many things.

But the rewards are many without handing out unnecessary tax breaks such as the proposed cuts.

Yeah, I don't mean it like that.

There are certain number of business owners who produce revolutionary or evolutionary changes in the world. Like the Elon Musks. I would say that it's a small fraction but they are over-represented as business owners because they have the same attributes that make for successful business owners.

There are also a lot of business owners who do a lot of good work within their communities.

And, quite frankly, there are lots of them who are just in it for the money and personal gratification and could give a rats a** bout the rest of the world.

So, that's why I react a bit cynically when the media and the political parties tend to speak of small businesses in such glowing terms.

[TimG]

And, quite frankly, there are lots of them who are just in it for the money and personal gratification and could give a rats a** bout the rest of the world.

You can say that about any group. Do you think the average union guy cares about 'social justice'? Not the least - they just want more breaks that they can abuse. BTW: since you are so obsessed with what you call fair what about:

1) public servants who have grotesque benefit packages that no one in the private sector has;

2) natives that pay no tax on reserve income (which now include investments held in banks on reserve);

3) non-custodial parents shafted by the 'what's best of the kids' mantra

I am willing to bet that you don't care that much about unfairness when the unfairness in tilted toward people you approve of. The only reason you are griping about businesses is because you don't like or understand them.

Edited September 11, 2015 by TimG

[ReeferMadness]

You can say that about any group. Do you think the average union guy cares about 'social justice'? Not the least - they just want more breaks that they can abuse. BTW: since you are so obsessed with what you call fair what about:

1) public servants who have grotesque benefit packages that no one in the private sector has;

2) natives that pay no tax on reserve income (which now include investments held in banks on reserve);

3) non-custodial parents shafted by the 'what's best of the kids' mantra

I am willing to bet that you don't care that much about unfairness when the unfairness in tilted toward people you approve of. The only reason you are griping about businesses is because you don't like or understand them.

Awww. You seem upset because I'm not genuflecting in your presence.

[TimG]

Awww. You seem upset because I'm not genuflecting in your presence.

WTF? It was straight forward question. You have asserted that the structure of corporations give tax advantages to people who run corporations. You claim it is unfair. But "unfair" is in the eye of the beholder and I gave several examples of unfairness that I suspect you are not that bothered about. So the question becomes: why should the fact that you think the structure of corporations is 'unfair' matter?

[SpankyMcFarland]

I agree. The two are not in the same category and can't be compared apples to apples.

Like I posted, 80% of small businesses don't make it past 18 months. I think that is more of a risk than just taking a job at the plant.

True for restaurateurs, who are heroes in my book. Not true for radiologists.

[ReeferMadness]

True for restaurateurs, who are heroes in my book. Not true for radiologists.

Really? How about haberdashers? What about xylographers?

What is it that makes them heroes?

[cannuck]

The petty annoyances of having to run a business kept me away, but I did do a quick read through this growing thread. My takeaway so far is that some portion of the posters seem to still think there is something special in tax treatment for a business owner. Primarily the dividend tax rate. Well, last time I asked my accountant (I know literally NOTHING of taxation other than I have to pay it and do what I am told to stay legal - that is why I pay accountants) that same exemption is available to ALL taxpayers. The envy expressed over a business owner being able to avail oneself of such an advantage is NOT unique to business owners, small or large. So just put your money into a real business that pays a dividend - that's what we have done, that is what you can do.

Then, there is the issue of playing tax dodge with corporate expenditures. Do you really think I have the time to waste on nickel and diming the taxman????? If so, you have no idea what it is like to be in a business that actually DOES something rather than fill in tax forms and otherwise shift ink blots. I/we could only avail ourselves of this "great" advantage by cheating and risking wasting a bunch more time with audits - worse yet having some jackass employee of another agency sticking their nose into my/our business. I will not even open an envelope from a government agency of any kind because it will not make me any money, make my products or services any better but most of all allow me to concentrate on what I do - which is run the business.

BTW: I have a template for the ultimate definition of what "fairness" is for legislation, regulation and ultimately taxation. When I once asked Sir Roger Douglas how he managed to reconcile his very conservative policies required to save his country from collapse with the fact he was the Minister of a Labour government, he replied with four of the most intelligent and well chosen words I have ever heard: "we simply removed privilege". THAT, IMHO, is what a flat tax system would do - except of course for the whole issue of wealth re-distribution rather than wealth creation. It is also the test I apply to ANY law, regulation or policy. As we govern now, the whole massive mess is in the full time business of granting privilege - at a cost of billions per month to the taxpayer.

The other big deal about an ultra simple tax system (I believe I could write all of the rules on a single sheet of legal size paper) is that it would eliminate the vast majority of the massive business (it is far more than a cottage industry) that plays tax accounting gains for business large and small. That massive amount of service is creating no wealth, and contributing to the structure of business that encourages nothing but wealth re-distribution as a means to accumulating wealth, rather than wealth creation. Take a tax accountant out of his office and put a tool in his hands and he converts to a productive part of the economy, not another part of the parasitic service industry.

[SpankyMcFarland]

Really? How about haberdashers? What about xylographers?

What is it that makes them heroes?

Heroes is a bit strong. They are just an example of business people taking genuine risks and working tough hours.

[msj]

You have not been following the conversation. No one is avoiding taxes. The ONLY major benefit one can get from a corporation if you have enough income is tax *deferral* which means you pay taxes later when (presumably) your marginal rate is lower. But even then that is no guarantee since tax rates can go up and cost you more later than if you had not chosen to defer.

This is a point I meant to get to earlier: as already mentioned tax integration is not perfect.

I leave income in my company because I don't want to pay tax on it at 45%.

So I will pay tax at 13.5% and then pay tax on it later.

Depending on circumstances that tax rate for an ineligible dividend will be anywhere between 0% to ~ 38%.

Thanks to a combination of pension splitting, TFSA's, and taking dividends out from the corporation it should not prove very difficult to keep the tax rate to around 20%.

So, 13.5 plus 20% is ~34% rather than the 45% I would be faced with today.

That is not only tax deferral but real tax savings.

[TimG]

That is not only tax deferral but real tax savings.

Tax savings if you have lower income when you take the money out right?. This is the same rationale that applies to RRSPs.

You also seem to saying that taking money out as dividends results in a lower tax rate even if your income is the same. If this is the case I guess it should be fixed. I think the idea of making the tax rates exactly the same for dividend or salary is a good one. I also agree that the preferential treatment of capital gains probably should go (maybe often specific incentives for investments in new business instead of treating all capital gains as equal).

[msj]

Tax savings if you have lower income when you take the money out right?. This is the same rationale that applies to RRSPs.

The thing is that guys like me get to use RRSP's to there max AND we get to then use the deferral and savings from the corporation (and we get to max out the TFSA too).

So, Trudeau is exactly correct about this issue when it comes to people like me.