Dear Mr. Sikand,
I remember your visit to the Rotary Club of Mississauga Credit Valley AM prior to your election to parliament, as our representative. I recall the promises you made, and your commitment to represent our needs in Ottawa.
I contrast this memory with the actions of your government, and I am dismayed and disappointed.
I beg you to voice our concerns in caucus and in particular to the Minister of Finance. There is insufficient time left in 2017 for small businesses (who make up a substantial part of your riding) to prepare for the fundamental tax changes promised for January 1, 2018. To announce the details of these proposals with less than 3 weeks before they take effect would be grossly unfair and unreasonable.
The proposed changes to the taxation of passive income earned by successful small businesses will have a chilling effect on the business environment, and have already encouraged a number of our clients to seriously consider emigration. However, if the government insists on proceeding with these changes, you must, in the interests of fairness, allow sufficient lead time for businesses to prepare for the promised grandfathering of existing investments, and the potential impact of the new rules on existing tax balances such as the Refundable Dividend Tax on Hand and the Capital Dividend Account.
If the new rules are announced between tomorrow and the end of the year, with an effective date of January 1st (or worse, immediate effect), some businesses will realize the intended benefits of grandfathering, by sheer luck, and many others will lose the promised benefits, by virtue of unfortunate circumstances.
No one outside of government knows what the new rules will be, but by their very nature, they will be detailed and highly technical. Consequently, those businesses that do not meet some narrow definition necessary to qualify for the grandfathering provisions will lose out. Many of these losers will be equally deserving of the benefits promised, but will be unable to enjoy them.
There are many provisions in the Income Tax Act that contain anti-avoidance clauses, ensuring that the intended benefits cannot be unfairly accessed. For example the “bump” in paragraph 88(1)(d) cannot be artificially enhanced by “stuffing” assets into the corporation prior to windup. In the same way, appropriate measures could be included in these new rules to ensure that as businesses prepare for the new reality of double taxation of passive income, the benefits of the grandfathering provisions are not unduly enhanced.
My sincere hope is that the government will abandon these ill conceived proposals. However, I have little faith in such an epiphany. In the absence of such an outcome, I implore you to at least ensure they are not implemented in an unfair and arbitrary manner, with less than 3 weeks lead time.
Best regards,
Paul Keul
Client Service Partner – Tax
S+C Partners LLP