Personal Finance

Trudeau going after Personal Services Corps disguised as small businesses

  • Last Updated:
  • Oct 17th, 2018 11:49 am
Deal Addict
Oct 7, 2007
3901 posts
1156 upvotes
Jermyzy wrote:
Dec 2nd, 2017 5:23 pm
Too bad election is not next year, my greatest fear is all this dies down by 2019 and people forget.
Agreed about wishing the election was next year but I don't think people will forget. I've never seen so much outrage and backlash about a tax policy before. It's almost like no politician would dare do something so bold and in your face as these guys did. And I'm not even bringing in the conflict of interest stuff. I really hope people do not vote Liberal though. There still seem to be a lot of supporters out there that don't get what is going on right now. It's like our society is divided. On the one side we have the people who are working hard in their businesses that are negatively affected by this tax policy. And on the other side we have people who are benefiting from all of the handouts that this government is using to make themselves look good while using the hardworking people as the direct funders of these "freebies".
Newbie
Jan 18, 2017
81 posts
51 upvotes
For tax purposes, there is no difference between one or the other. It's simply a matter of when the actual cash is released to the SH.

For actual "life" purposes, there are all sorts of reasons why cash wouldn't be released, even though a dividend was declared. Sometimes it's as simple as cashflow reasons. Other times it could be that declaring a dividend is done mainly for purposes of reducing refundable tax (RDTOH), as opposed to creating income for the SH.

Anyway I don't want to hijack this thread too much, so I'll keep things at that. PM if you have more queries.
mr_raider wrote:
Dec 1st, 2017 12:16 pm
Got it.

The risk here is you don't want to over pay yourself in 2017 otehrwise you don't want to blow up your 2017 tax bill too much either. Plus I don't see this as practical for more than one or two years out.

What's the functional difference between doing this and just paying out the dividend, taking the cash and stuffing it in a savings account until you use it?
______
Canadian & US tax guy
Sr. Member
Jul 20, 2017
511 posts
112 upvotes
There is an article in the G&M about the rush to implement the rules before Jan 1..I seriously doubt that in 14 working days left ( I take boxing week out) we will see the announcements, especially if morneau resigns...Public service seems to be too busy trying to get paid ( fixing Phoenix)...
This is unprecedented: to have changes so deep published so late....Not sure if trudeau and his liberals will ever start to govern...all this flashy travel and selfies and socks...
All they do is announcements, PR....but producing something...that is not happening...
Sr. Member
Jul 20, 2017
511 posts
112 upvotes
I really hope they will get this right. Will we probably have to fill out forms allocating the 50k business income between the related corporations? Probably yes...otherwise we just can start another corporation Smiling Face With Open Mouth
I am afraid doctors will start several companies, one for leg injuries, one for hand injuries, ...you get my point. Dentists will have one for molars, one for front teeth, Smiling Face With Open Mouth And Smiling Eyes. IT workers will create more then 1 companies: one for design, one for development and one for maintenance.

Then all the dividend top-ups..Maybe this extra 73% taxed income will have it's own top up rate? And tax credit?
Those who have cottages in numbered corporations, will divide up the rooms between the different companies. Will see names like The Laurentian Living Rooms co...
By the way morneau: no pressure there are 13 days left, hope phoenix can handle overtimeFace Screaming In Fear...And Bill/trudeau: as you are so busy working out this, please do not forget to sprinkle some presents for your families. This whole small business thing is less and less worth it to loose your family over it. Justin, maybe you could give them some trustlets, each containing one room Face With Stuck-out Tongue And Tightly-closed Eyes

This whole change thing was screwed up because of the bad communication. They have resolved that: there is no communication whatsoever nowSmiling Face With Open Mouth. It will certainly be a christmas surprise for all business owners. We will all receive a gift box wrapped in liberal red tape containing the new T2 Sch9999 with a $200k cover letter : aggregation and allocation of investment income over $50000 between related CCP corporations not placed in offshore trusts....
Deal Addict
Apr 2, 2008
1125 posts
204 upvotes
Doctors will just have to tough it out until the next collective agreement renegotiation. This time around there will be fee increases and the additional cost will be covered by provincial government.
Sr. Member
Apr 14, 2015
532 posts
146 upvotes
Tsuu T'Ina, AB
Sebastian6300 wrote:
Dec 6th, 2017 12:16 am
There is an article in the G&M about the rush to implement the rules before Jan 1..I seriously doubt that in 14 working days left ( I take boxing week out) we will see the announcements, especially if morneau resigns...Public service seems to be too busy trying to get paid ( fixing Phoenix)...
This is unprecedented: to have changes so deep published so late....Not sure if trudeau and his liberals will ever start to govern...all this flashy travel and selfies and socks...
All they do is announcements, PR....but producing something...that is not happening...
It sounds like some people are afraid that the actual rules won’t come out until the budget in the spring, but they will be effective January 1 as previously stated.

What? You think a government who doesn’t recognize integration will shy away from what is effectively retroactive taxation? I don’t!
Deal Addict
Apr 2, 2008
1125 posts
204 upvotes
Operatime wrote:
Dec 6th, 2017 2:59 pm
It sounds like some people are afraid that the actual rules won’t come out until the budget in the spring, but they will be effective January 1 as previously stated.

What? You think a government who doesn’t recognize integration will shy away from what is effectively retroactive taxation? I don’t!
The changes about income splitting can't be applied retroactively.
Deal Addict
Nov 13, 2013
1311 posts
505 upvotes
OTTAWA
Jermyzy wrote:
Dec 1st, 2017 4:07 pm
Will obviously wait for the 2018 budget before making any major moves, but I've already switched most of my index funds into swap-based ETFs. HXS, HXT, HBB were already core holdings, but i've switched my international index fund to HXDM (a new international swap-based ETF). Going forward, I will probably hold most ofmy dividend-paying stocks in my registered personal accounts, and will hold mainly stocks with no distributions (e.g. BRK.B) in corporate investing account. I may draw a little more salary to max out my RRSP/TFSAs. So I'm thinking overall I might actually pay less taxes, so technically these new rules may not impact me as much, but the extra administrative work will not be welcome.

I suspect that similar to how the increase in personal taxes led to a decrease in tax revenue, these new tax proposals will not bring in nearly as much revenue as the government is forecasting. But will cause much unnecessary headache for many of us. As described in my previous post, the number crunching shows that even with the "favorable" tax treatment for corporations/ccpc, we may actually be financially disadvantaged compared to salaried employees. Hopefully there will be further changes prior to the budget being introduced.
I am also a big fan of swap-based funds. Especially useful if your income is variable as you book the gains in a low income year. I fear they are the next target though so no need to tout them too loudly. If they get too popular could be next on the hit list. From an objective point of view they should be prohibited as their sole purpose is to reduce tax.
Deal Fanatic
Feb 9, 2009
6493 posts
3609 upvotes
Sebastian6300 wrote:
Dec 6th, 2017 8:21 am
I really hope they will get this right. Will we probably have to fill out forms allocating the 50k business income between the related corporations? Probably yes...otherwise we just can start another corporation Smiling Face With Open Mouth
I am afraid doctors will start several companies, one for leg injuries, one for hand injuries, ...you get my point. Dentists will have one for molars, one for front teeth, Smiling Face With Open Mouth And Smiling Eyes. IT workers will create more then 1 companies: one for design, one for development and one for maintenance.

Then all the dividend top-ups..Maybe this extra 73% taxed income will have it's own top up rate? And tax credit?
Those who have cottages in numbered corporations, will divide up the rooms between the different companies. Will see names like The Laurentian Living Rooms co...
By the way morneau: no pressure there are 13 days left, hope phoenix can handle overtimeFace Screaming In Fear...And Bill/trudeau: as you are so busy working out this, please do not forget to sprinkle some presents for your families. This whole small business thing is less and less worth it to loose your family over it. Justin, maybe you could give them some trustlets, each containing one room Face With Stuck-out Tongue And Tightly-closed Eyes

This whole change thing was screwed up because of the bad communication. They have resolved that: there is no communication whatsoever nowSmiling Face With Open Mouth. It will certainly be a christmas surprise for all business owners. We will all receive a gift box wrapped in liberal red tape containing the new T2 Sch9999 with a $200k cover letter : aggregation and allocation of investment income over $50000 between related CCP corporations not placed in offshore trusts....
I agree. Though some dentists with multiple locations could technically have a corp for each location to mitigate risk.
Sr. Member
Jul 20, 2017
511 posts
112 upvotes
Jermyzy wrote:
Dec 1st, 2017 4:07 pm
Will obviously wait for the 2018 budget before making any major moves, but I've already switched most of my index funds into swap-based ETFs. HXS, HXT, HBB were already core holdings, but i've switched my international index fund to HXDM (a new international swap-based ETF). Going forward, I will probably hold most ofmy dividend-paying stocks in my registered personal accounts, and will hold mainly stocks with no distributions (e.g. BRK.B) in corporate investing account. I may draw a little more salary to max out my RRSP/TFSAs. So I'm thinking overall I might actually pay less taxes, so technically these new rules may not impact me as much, but the extra administrative work will not be welcome.

I suspect that similar to how the increase in personal taxes led to a decrease in tax revenue, these new tax proposals will not bring in nearly as much revenue as the government is forecasting. But will cause much unnecessary headache for many of us. As described in my previous post, the number crunching shows that even with the "favorable" tax treatment for corporations/ccpc, we may actually be financially disadvantaged compared to salaried employees. Hopefully there will be further changes prior to the budget being introduced.
I wonder how do you invest in BRK.b...the brokerage fees for converting to and from US $ seem crazy...
Deal Addict
Oct 7, 2007
3901 posts
1156 upvotes
Operatime wrote:
Dec 6th, 2017 2:59 pm
It sounds like some people are afraid that the actual rules won’t come out until the budget in the spring, but they will be effective January 1 as previously stated.

What? You think a government who doesn’t recognize integration will shy away from what is effectively retroactive taxation? I don’t!
In looking at some of the proposed changes, it looks like integration will be lost and there may be some double taxation (e.g. removal of the RDTOH). If this is correct, is it legal for the government to tax money more than once? I used to think that the government could do whatever they have wanted but this is not true. There have been cases where cases have gone to court and the government has lost. To me there seems to be something fundamentally flawed with double taxation.
Sr. Member
Jul 20, 2017
511 posts
112 upvotes
choclover wrote:
Dec 7th, 2017 10:23 am
In looking at some of the proposed changes, it looks like integration will be lost and there may be some double taxation (e.g. removal of the RDTOH). If this is correct, is it legal for the government to tax money more than once? I used to think that the government could do whatever they have wanted but this is not true. There have been cases where cases have gone to court and the government has lost. To me there seems to be something fundamentally flawed with double taxation.
There is definitely legal to tax more then once..It is happening all the time. You pay HST to heat your house although you are paying for it with after tax dollars..
Deal Addict
User avatar
Jul 30, 2010
1759 posts
232 upvotes
Sebastian6300 wrote:
Dec 7th, 2017 11:09 am
There is definitely legal to tax more then once..It is happening all the time. You pay HST to heat your house although you are paying for it with after tax dollars..
Plus every used vehicle sale is charged PST. That could be 5-10 charges of tax on the same product over its useful life. Complete scam.
Deal Addict
Oct 7, 2007
3901 posts
1156 upvotes
Sebastian6300 wrote:
Dec 7th, 2017 11:09 am
There is definitely legal to tax more then once..It is happening all the time. You pay HST to heat your house although you are paying for it with after tax dollars..
I think there is a difference between what is fair and what is LEGAL. If challenged in court, it would be interesting to see if double taxation on dividends sticks.
Sr. Member
Jul 20, 2017
511 posts
112 upvotes
choclover wrote:
Dec 7th, 2017 4:31 pm
I think there is a difference between what is fair and what is LEGAL. If challenged in court, it would be interesting to see if double taxation on dividends sticks.
You are touching on the key issue: there is no clear fundamental tax charter of rights and principles. The double taxation would be a key right there.
Governments come and go, and make all kind of rules. Some are disguised as benefits, or credits...It all should be part of the tax system..
What is annoying is that we see more and more government paid advertising that hides the key facts. As this whole super rich story. Hiding the benefits employees enjoy...like having their credit card fees and interest paid by employer, because of a bad payroll system:-). Or promoting the lie of free tuition in Ontario. Maybe another action plan coming soon ?

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