By now, I think everyone is aware that in July the federal government issued a “Consultation Paper” called Tax Planning Using Private Corporations. The consultation period ended Oct. 2.
Although they asked for feedback on the proposals, I think it’s safe to say that the government was not ready for the angry, well-informed and ultimately organized response and outrage from the public. Even some members of Mr. Trudeau’s own caucus expressed dismay and disagreement, after doing their own research and talking to their constituents.
The minister of finance, Bill Morneau, also seemed not to have expected to find out that the bureaucrats in the Department of Finance (who have guaranteed salaries and pension plans, unlike the subjects of their proposals) had not properly considered all of the ramifications, side effects and collateral damage that would be caused by implementing these draconian measures in the name of “tax fairness”.
So, where does that leave us today? Throughout this process of requesting feedback, it was odd to hear Mr. Morneau and Mr. Trudeau repeatedly say words to the effect of, “we’re not backing down”, in spite of the fact that they had called this a consultation, and said that they would listen to the concerns of Canadians.
Finally, as the consultation period wound down, Mr. Morneau admitted they would need to make some tweaks to the proposals. That would have sounded quite positive, if he had not added the condescending and patronizing comment that, “this should quiet some of the more excited responses,” suggesting that many of the smartest and most qualified minds in the country were just being emotional.
That pompous and arrogant comment made me so angry that I wrote an article saying how I really felt about all of this, but fortunately our compliance department would not let me publish it.
That article might’ve pointed out some of the many questions (some thoughtful, some argumentative) asked in the parliamentary question period this week, to which the minister of finance repeated, over and over again, a word-for-word non-answer about “fairness,” ignoring any facts presented. At times, he sounded as removed from reality as Donald Trump going on about “fake news”.
At any rate, we can now hope for some clarification on the proposals, when we see the legislation that was likely written before the consultation period started, and hopefully some amendments to it.
A positive factor is that the minister has stated that they will make sure that this attack on job creators will not negatively affect plans that were put in place in the past, acknowledging that such structures may have been set up decades ago.
An oft-repeated phrase by the minister is that these will be enacted on a “go forward” basis, not retroactive.
Let’s hope that’s true. That might mean that passive investment income earned on capital already in place within a corporation would continue to be “only” taxed at 38% to 46% within the corporation, and then again taxed to the shareholder at 24% to 38% when dividends are taken out, in order to actually be able to spend the money.
That’s part of the so-called “unfairness” that is being attacked. No wonder I can’t write about this process without becoming angry.
As the proposals are finalized, I will provide planning advice in future columns.
Have a great Thanksgiving weekend!
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Dollars and Sense is meant as an introduction to this topic and should not in any way be construed as a replacement for personalized professional advice. Please consult legal, tax, insurance and investment experts for advice on your unique situation.
David Christianson, BA, CFP, R.F.P., TEP, CIM is recipient of the FELLOW OF FPSCTM Distinction, a portfolio manager and senior advisor with Christianson Wealth Advisors, a Senior Vice President with National Bank Financial Wealth Management, and author of the book Managing the Bull, A No-Nonsense Guide to Personal Finance.