OTTAWA — A new analysis says roughly 900 Canadian families earning less than $100,000 a year will have to pay more taxes because of federal changes to tighten income-sharing rules for owners of small businesses.
The federal budget watchdog says measures to restrict how much income the owners of private corporations can sprinkle to family members, as a way to save on taxes, will cost an average of $2,200 more a year for each of the 900 households.
The income-sprinkling change was among a handful of measures Ottawa insists will target wealthy people who use corporate structures purely as a way to reduce their taxes.
The report by parliamentary budget officer Jean-Denis Frechette found that close to 33,000 families could pay more taxes because of the income-sprinkling rule that came into effect Jan. 1.
Frechette’s analysis says about 11 per cent of the households affected by the changes earn less than $150,000 per year, while 83 per cent of them make less than $500,000 per year and two per cent bring in more than $1 million per year.
The budget office’s preferred estimate also says the changes could generate a tax windfall for Ottawa of about $400 million a year — double the $200-million a year projected in the recent federal budget.
The report, however, notes that the numbers crunched for the budget office estimates differ from those used by the Finance Department.
Frechette’s report also predicts the income-sprinkling change will bring in about $230 million in additional tax revenues for provincial governments in 2018-19 — with Ontario easily taking the largest share with a $160-million increase.
The Liberals’ income-sprinkling measure was part of Finance Minister Bill Morneau’s controversial tax-reform proposals for private corporations, which came under fire for months following their release last summer.
The vocal backlash, including public criticism by some Liberal backbenchers, included warnings the changes would hurt the very middle class the Trudeau government has claimed to be trying to help. The push back forced Morneau to eventually back away from some elements of his plan.
The Canadian Press