Finance Minister Bill Morneau is finally releasing details on how his government plans to crack down on the practice of income sprinkling, months after stating his intention to do so.
The finance minister has outlined in broad terms the federal government’s desire to limit the ability of business owners to reduce their personal income taxes by moving some of their income to family members who do not contribute to their companies.
Today, Finance Department officials said businesses will have until Dec. 31, 2018, to adjust to the changes, which include new qualification rules for family members — such as substantial capital investments as well as minimums for age and the number of hours worked.
Morneau will speak to reporters about the changes after question period later today. CBCNews.ca will carry his remarks live.
Earlier this fall, after weeks of intense criticism about both his proposals and own personal wealth management, Morneau announced changes to the initial tax change proposals he put forward in July, but also stated that proposed changes to income sprinkling would kick in on New Year’s Day.
At the time, the finance minister promised the details would come later this fall.
With time running out, business group and opposition politicians have been, once again, critical of Morneau.
“First he ruined summer, and now he is ruining Christmas for small business owners,” Conservative deputy leader Lisa Raitt said on Tuesday.
Morneau has been attempting to downplay the impact of the changes.
“We are going to announce, for those three per cent of small businesses that split revenue to other family members, how they can do this very simply,” he said Tuesday.
Senate committee wants changes scrapped — or delayed
The announcement comes as the Senate’s national finance committee issued a report Tuesday — after a months-long cross-country fact-finding investigation on the proposed changes — demanding the government scrap the proposals or, at the very least, delay implementation until Jan. 1, 2019, a year later than planned.
“This is not some exercise to embarrass the government, indeed Minister Morneau endorsed our investigation at the outset,” Sen. Percy Mockler, the Conservative chair of the committee, told reporters. “We believe there is too much confusion for the government to proceed on the timeline it has suggested.”
The 50-page report documents a host of witnesses demanding senators urge the government to withdraw the proposed changes entirely. “We are inclined to agree. We are not convinced that the government has made a good case for its proposals,” the report states.
The committee said it was particularly troubled by plans for the so-called “reasonableness test” for income sprinkling, warning it could lead to arbitrary decisions by Revenue Canada bureaucrats. “The difficulty of understanding and complying with the rules will lead to uncertainty, foster tax appeals and litigation,” the report reads.
Beyond the specific changes to the small business tax regime, the Senate said the government should immediately begin a comprehensive review of the entire tax code — something that has not be done since the 1960s, when the government of the day launched a royal commission on the matter.
Sen. Elizabeth Marshall, a Tory member of the committee from Newfoundland and Labrador, said the tax system has become a “ponderous and unwieldy monster” after years of haphazard additions. “An independent review should take place regardless if the government moves forward with its proposed changes,” she said.
Not one of the Trudeau-appointed Independent senators were present for Wednesday’s press conference, leading to questions as to whether the critical report was rammed through by Conservative appointees. Mockler insisted a majority of the committee — comprising five Conservatives, five Independents and two Senate Liberals — backed the report.