CFIB calls for delay on new income sprinkling rules

New income sprinkling rules are a “lump of coal” for Canadian businesses, according to the Canadian Federation of Independent Business (CFIB).

Changes to the Income Tax Act could mean more red tape for business owners, said Dan Kelly, president of the CFIB.

“After signs the government was starting to listen to the voices of entrepreneurs, this is another blow,” Kelly said.

The rules were released on Dec. 13, and will be effective Jan. 1, 2018. The CFIB has called on the federal government to delay implementation for another year.

“This seems the very opposite of tax fairness,” said Kelly. “How our government expects small businesses to understand the new rules and make any needed changes to their corporate structures in two and a half weeks is beyond me.”

Income sprinkling is used by high-income owners of private corporations to divert income to family members with lower personal tax rates.

Proposed changes to the CRA’s policy will require business owners to prove that the family member makes a “meaningful contribution” to the business, among other adjustments.

“We remain concerned that the new income sprinkling provisions won’t take into account many of the formal and informal ways family members participate in the business,” said Kelly.

The government plans to exclude some family businesses from the new rules, including spouses of business owners over the age of 65.

A report by the Senate Finance Committee states that the “income sprinkling proposal will be complicated to apply, require significant paperwork, and rely on the subjective determination of tax auditors, inevitably leading to inconsistency and litigation.”

The Senate has recommended the entire package of changes be delayed to 2019 or replaced with an independent review.

“It is deeply worrisome that the CRA—the same agency that thought it was a good idea to tax the dishwasher’s discount on his pizza lunch—will now be asked to determine whether the contributions of a mom and pop shop warrant the salary and dividends paid to mom and pop each year,” said Kelly.

SOURCE: CFIB