Finance minister tinkers with tax-reform proposals
OTTAWA—Finance Minister Bill Morneau is expected to lay out possible changes Monday to the controversial tax reforms that have put the Liberals on the defensive.
Liberal MPs have been summoned to a presentation by Morneau on Monday morning at a rare special caucus meeting on Parliament Hill.
In a tweet, Morneau would only say that he’s “looking forward” to the meeting “to listen and keep working together on our plan to grow and strengthen the middle class.”
The finance minister is expected to outline next steps in his plan to bring in reforms to how privately incorporated businesses are taxed.
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But Morneau comes to the meeting a wounded finance minister who, over the past several weeks, felt the sting of caucus ire over both proposed changes that triggered widespread opposition and his own inability to communicate the rationale for them.
Morneau, who was an independently wealthy businessperson before he entered politics, has faced steady fire from the Opposition for painting small business owners as tax cheats while not targeting other tax measures that favour big corporations such as his family company Morneau-Shepell.
On Friday, there was renewed interest in Morneau’s ownership of a villa in France through a numbered company in that country. This allows him to pay lower taxes there. He had previously disclosed the villa, but not the ownership structure.
It’s all made for a rough two months for the rookie minister, who unveiled the new tax measures during the summer.
The proposed changes sought to limit the ability of business owners to engage in so-called “income sprinkling,” or paying part of their income to family members, named as employees, to reduce their tax exposure.
Ottawa also wants to crack down on passive income from investments parked within a private corporation, money that can be shielded from the higher personal income tax rate.
Finally, the finance department wants to limit the ability of private corporations to convert some income into capital gains, which are subject to less tax.
While Monday’s meeting is billed as a “listening exercise,” Morneau and his Liberal colleagues have already had an earful on the proposals.
Small businesses, doctors and farmers are among the groups who have spoken out against the changes. They argue they will cost jobs.
The Canadian Federation of Independent Business has called the measures the “most significant tax changes in decades” and launched a campaign to oppose it.
Prime Minister Justin Trudeau and Morneau have defended the changes as an integral part of the government’s efforts to make the tax system fairer.
Trudeau has said that the concerns voiced by small business owners, opposition MPs, even members of his own caucus, could result in modifications to the planned reforms.
“We will ensure that we’re doing it the right way, so that hard-working, middle-class small businesses, hard-working, middle-class farmers, do not get penalized by a measure that is aimed at wealthy Canadians,” Trudeau said last month.
That was echoed by Morneau, who said, 10 days ago, the reforms would be adjusted slightly to accommodate public concerns.
Morneau has downplayed hopes the government would ditch the proposals altogether. The measures have enraged many small business owners who say they need to shelter income at lower tax rates within their company to expand the business or get through hard times.
A Liberal caucus source told the Star the final version of the proposed tax reforms will be introduced in the fall fiscal update. But it is possible they could be introduced in a separate bill.
The finance minister said he’d heard loudly and clearly objections in five areas and promised any changes would: not curb the ability of small businesses to grow; still allow other small businesses to remain small; allow intergenerational transfers of family farms or fishing licences without additional penalty; allow small businesswomen to save for maternity or other family-related leave, and would not increase red-tape. Morneau said he would ensure any measures that require family members prove they are doing work for the business are “administratively efficient.”
Morneau said he is entertaining other “technical” changes as well, including ensuring there is no unintended double-taxation upon death for those who have private corporations. (Concerns had been raised about whether small business owners will be able to hold life insurance within their corporations.)
Appearing at a question period in the Senate on Oct. 3, Morneau said government did not want to create “unintended consequences.”
But he has insisted the government’s objective remain; it doesn’t want a tax system that “allows wealthy Canadians to incorporate to get a lower tax rate than other Canadians.”