Finally....

[tweety]

Ask your accountant. That is exactly what mine told me as well. And this was confirmed by another accountant with whom I asked the same question.

Well that's not a very good answer!

The question was how. Since you were obviously told, how about sharing it. We need some facts in this discussion.

Certainly the passive investing and laundering income thru all the families kids days are over.

[Jagfarms]

http://www.morneaushepell.com/ca-en/about-us



QUOTE=Jagfarms;356517]Copy and paste below of some information regarding the proposed tax changes


"Someone has done some serious digging and has come up with the real reason for"tax reform". Props to John Gormley as I swiped this comment from his thread earlier today:

John Gormley are you aware of this?

It's becoming clear that some very wealthy Canadian shareholders tied to Finance Minister Bill Morneau are positioned to benefit handsomely from the proposed federal tax changes for incorporated small businesses and professionals. As Canadians, we should be paying very close attention.

Just yesterday my husband and I learned about pension-type savings options for small business owners called Retirement Compensation Arrangements (RCAs) and Individual Pension Plans (IPPs, geared more towards business owners in their 50s).

These retirement savings plans/products were suggested to us as potential next steps if the proposed federal tax legislation affecting small business goes through. (For context, given our incorporated structure, if the legislation is passed, any income we draw when we retire will have been taxed at a rate of 73%. Clearly, this doesn't seem like a fair deal for a lifetime's worth of work, so we—like every other incorporated small business owner out there—are working hard to understand what our options are.)

Today, from an All Nova Scotia article (Sept 19), we learned that the largest provider of these pension plans in Canada is none other than Morneau Shepell.

That's right, Morneau Shepell—the multinational benefits/pensions consulting firm founded by Federal Finance Minister Bill Morneau's dad, William Frank Morneau, Sr. in 1966, with annual revenue in 2016 totalling $592 million Cdn. It's the largest benefits and pension firm in Canada.

Today, William Frank Morneau is listed as honourary chair and founder of Morneau Shepell on the company's website. And Bill Morneau, according to the All Nova Scotia article, "...controls over 2.2 million Morneau Shepell shares worth over $47 million based on the closing stock price on Monday."

If the federal government brings in their proposed tax changes, led by Justin Trudeau and Finance Minister Bill Morneau, incorporated small businesses across Canada will be forced to close their holdings companies and opt instead for other retirement savings strategies... like the private pension plans offered by Morneau Shepell.

So who really stands to benefit from the legislation that's being positioned as changes to make the tax system fairer?

That's right: Bill Morneau, major shareholder in Canada's largest pension corporation. Bill Morneau, Canada's Federal Finance Minister. Bill Morneau, the guy who keeps saying he's closing "loopholes" and "fancy accounting schemes" that give wealthy Canadians unfair advantages over the middle class (...you know, those greedy farmers and doctors and local business owners and such).

While doctors are making calls to healthcare organizations offering jobs south of the border, and small business owners nearing retirement are looking at having to work for several more years, and family farms and businesses passed on through generations face being penalized for passing them down to their kids (and rewarded for selling them to anyone other than their kids), and young couples who've put everything on the line to start their dream business come to terms with the fact that the rug has been pulled out from under them, Morneau Shepell directors and shareholders must be rubbing their hands together in eager anticipation of the windfall to come their way.

If there's a "fancy accounting scheme" that deserves the government's full attention right now, including a thorough Conflict of Interest investigation, I think it's staring them right in the face.[/QUOTE]

[Sodbuster]

When people talk about the low tax rates corporations pay they fail to include the fact that the money is taxed again when the shareholders take it out personally. You are just delaying or postponing the tax in a corp. When you retire whether you take it out as salary or dividends you may pay another 54% on top of the 18% that the corp paid in the past. Dividends are grossed up so that there is no real tax advantage.

This sums up our current system quite well. In the end because we are double taxed as we pull money out of the corp we will pay more taxes than the average wage earner making the amount of income. The current system works well, proposed changes are disturbing. For instance how do you determine passive income? Example, my farm has $1,000,000 in a short term saving account by the end of the year it may be at $0, this is money that I will use for fertilizer, seed, chemical and future capital expenditures. Even though this is my working capital will the new proposals view this as passive income?

[vvalk]

Well that's not a very good answer!

The question was how. Since you were obviously told, how about sharing it. We need some facts in this discussion.

Certainly the passive investing and laundering income thru all the families kids days are over.

What's wrong with passive iincome? You don't want any business owner thinking outside then box to create more wealth and therefore more taxes and what's really important more jobs? Just because that income is outside the primary reason for the business, who cares? Tweety you think farmers should only farm and not look to try new ideas or ventures?

[wmoebis]

This sums up our current system quite well. In the end because we are double taxed as we pull money out of the corp we will pay more taxes than the average wage earner making the amount of income. The current system works well, proposed changes are disturbing. For instance how do you determine passive income? Example, my farm has $1,000,000 in a short term saving account by the end of the year it may be at $0, this is money that I will use for fertilizer, seed, chemical and future capital expenditures. Even though this is my working capital will the new proposals view this as passive income?

Won't you still be taxed after costs of prodution and only on profits from sales?

[vvalk]

So the logic is if you grow grain and sell it you pay 25% tax in the corp but see a gap in the market and make some income and pay 60+% or whatever it is?
And if Trudeau and morneau are really going after the "rich" why not close all the loopholes around family trusts their families use today? Grassfarmer how many middle calls people do you know who have family trusts set up? How many middle class people own and operate small business?

[farmaholic]

This sums up our current system quite well. In the end because we are double taxed as we pull money out of the corp we will pay more taxes than the average wage earner making the amount of income. The current system works well, proposed changes are disturbing. For instance how do you determine passive income? Example, my farm has $1,000,000 in a short term saving account by the end of the year it may be at $0, this is money that I will use for fertilizer, seed, chemical and future capital expenditures. Even though this is my working capital will the new proposals view this as passive income?

I see it as your operating capital... as long is it's drawn down to a level where it doesn't look like a "savings account". And the replenished. What's the difference if you have an operating loan that you pay interest on to use or have your own capital you use to operate with that you get a pittance of an interest rate on.

Passive income was explained to me as investments made in stocks and bonds and other instruments that have nothing to do with the day to day operation of the corp.

You would think the government would do anything possible to make farms financially self sufficient given the risk and uncertainty they face financially. Or would they rather have us relying on useless farm income support programs? Stupid.

Let us manage our income by having a "cushion" to fall back on by having some capital over and above what is needed to operate the the corp/farm on a yearly basis.... whether that's cash in the bank or deferred grain cheques....or passive investments.

[Sodbuster]

Won't you still be taxed after costs of prodution and only on profits from sales?

Yes, my point being that retained earning in a corp is money that has already had the tax paid on and when that money is pulled out of the company it will be taxed for a 2nd time at what ever your personal tax rate is.

[GDR]

Ask your accountant. That is exactly what mine told me as well. And this was confirmed by another accountant with whom I asked the same question.

I think this is a case of hearing what you want to hear. No I am not an accountant, and no I don't want to pay more taxes of any kind. If your accountant did specifically tell you that I'd ask for a refund and hope you don't get audited.

All I can dig up for actual info on generational transfers relates to CGD and appears they are taking the CGD away for minors and any amount of gain before the kids turn age 18. So you can't use each of your toddlers capital gain exemption only the portion that happens as an adult. So creative accounting likely will be more difficult and consequently be higher tax than some have paid in the past.

The part of the rumor that erks me is the MORE word, use your common sense. If it would cost more to roll over to junior than sell to others wouldn't it just make sense to "sell to junior".

[fjlip]

Wow Jagfarms, they are absolutely treasonous, if all that is true.

[rockpile]

Even if these changes are implemented I doubt they will pass the smell test in court. A consultation period is in effect until Oct. 2nd. Go to the on line comments and state your concerns there. If enough people did it would have an impact. Or phone finance.

[Horse]

After reading this thread its quite clear no one relay understands this bill, me included, most are jumping at shadows and when you have no real answer you take to name calling, making fun of grassfarmer,like a bunch of school kids, Most of the opposition can be traced to party affiliation, now if people would drop that and get down to facts Mabry we could get somewhere on this discussion.
Does all those personal corps know they are loosing money by being incorporated?

[LEP]

Horse, in the past have you ever heard one accountant speak out against a tax change? I have never heard the uproar and volume of concern from accountants on any tax measure in my lifetime. So it definitely gets my attention.

My accountant in July called this the biggest tax change since 1971, well before it was even on the radar. I think it is you who should get educated rather than criticizing others who are upset.

Businesses need working capital that needs to be readily available to operate and grow their operations. By having to pay personal tax rates on every dollar of profit in the corp it would kneecap the small business economy. No other country in the world does this.

When income is removed from a Corp into personal hands the appropriate personal taxes are paid and rightfully so.

You would never have another company turn into a Brandt, bourgault, Schultz, Morris, etc success story if all corporate profit had to pay personal tax rates. Just wouldn't happen.

So Grassy, if there is a 200,000 profit in a company that pays personal rate of tax what tax do you propose they pay when they take it out of the company? Another round of tax? Guess what will happen? Entrepreneurs will say to hell with it. The economy would go into recession and people wouldn't have the money to pay extra for that expensive grass fed beef.

[grassfarmer]

Just need to point something out here ...
Say the farmer makes $200,000 as said , he most likely spent over $1,000,000 on total inputs into the local economy...
The wage earner spends zero to earn his $200,000 relative to the farmer .
Most people forget that little tid bit of info or completely ignore it .
Also that farmer can make zero the next year and still have to spend $1,000,000 on total inputs into the local economy supporting many many jobs while he is called a whiner if he says anything at all by the likes of grassfarmer , or the wage earner who still gets his $200,000 without having to spend a dime to earn that other than fuel to get to work and back .

Yeah, but it doesn't occur to you that the input suppliers pay tax on the profits they make? You seriously think you should pay less tax on the profit you made because you spent money on inputs.

I had a quick chat with our accountant. And these are the things he said they are trying to change.

Income splitting and sprinkling....paying wages to spouses and children for work they aren't doing or incapable of doing. Remember everyone can earn their personal exemption tax free,,,, so if your paying kids about $11,000 for doing nothing? But I don't know many farms where the kids do nothing, I can see this being the case where incorporated "professionals" are paying their kids or spouse who are doing absolutely nothing. How do you prove it? Phony record keeping of days and hours worked? Then there is the acid test of does the compensation(pay) equal the amount and quality of work done by those receiving the split or sprinkled income.

Passive corporate income. Income in a corporation that has a pile of retained earnings in cash that is invested in stocks and bonds or other non-active income and the investment income is taxed at corporate rates instead of personal tax rates. I think holding companies are also a target for this sort of thing.

And something about people receiving shares in a corporation without having bought into it or being actively involved in it then receiving dividends from such.

I know there are people on this site who would have a better handle on it than I and could do a better job of explaining it that me. Our accountant actually told me what we are doing now and the way we are going, these proposed changes will have little affect on us. Unless I want to give a piece of a whole farm to kids that haven't bought in or actively involved in the farm corp and would receive dividends.


Can anyone verify or add to this.

It was all there in Jan's OP ED Farma. Maybe your accountant read it too.

The Government is looking at three specific type of tax evasion:
Income sprinkling (when corporations pay dividends to family members who do not contribute to the business, for the sole purpose of avoiding taxes).

Passive investment (when a wealthy person uses their private corporation to make investments in mutual funds, stock markets, bonds, etc. instead of investing under their own name, allowing them to pay less tax and increase their private fortune faster).

Converting income into capital gains (setting up shell companies and using the corporation’s income to buy and sell shares in these companies, resulting in profits being counted as capital gains from these transactions instead of income from their corporation, and thus taxed at a lower rate).

[LEP]

Yeah, but it doesn't occur to you that the input suppliers pay tax on the profits they make? You seriously think you should pay less tax on the profit you made because you spent money on inputs.




It was all there in Jan's OP ED Farma. Maybe your accountant read it too.

The Government is looking at three specific type of tax evasion:
Income sprinkling (when corporations pay dividends to family members who do not contribute to the business, for the sole purpose of avoiding taxes).

Passive investment (when a wealthy person uses their private corporation to make investments in mutual funds, stock markets, bonds, etc. instead of investing under their own name, allowing them to pay less tax and increase their private fortune faster).


Converting income into capital gains (setting up shell companies and using the corporation’s income to buy and sell shares in these companies, resulting in profits being counted as capital gains from these transactions instead of income from their corporation, and thus taxed at a lower rate).

I highly doubt any accountant would take tax advice from the NFU. Besides didn't he end his article asking for more tax breaks for farmers?

There are already attribution rules. They are proposing tightening them and as long as they don't affect me giving my kids the farm , then fair game.

You do realize that currently, passive income in a company is taxed at a higher rate. Between 46 and 50%.

Don't know much about capital gains play and this may be a valid loophole to close.

However, none of these deal with your idea of taxing all Corp income at personal rates.