CRA could have unlimited discretion: 2017 tax reform
Imagine if the police had the power to pull you over because you are driving a fast looking car. They then issue you a ticket for speeding, however there is no posted speed limit. The police officer has not been issued a radar gun or laser and so doesn’t know how fast you were actually traveling, they judge your offense based on what they think is ‘reasonable’ at that moment in time. A ticket is, similarly, issued for any amount the police officer deems ‘reasonable’ in the circumstances.
The proposed tax changes surrounding splitting dividends (so called ‘income sprinkling’) and capital gains with family members would give the CRA this type of unbridled discretion to determine what is a ‘reasonable’ disbursement to family members based on their contributions to the family business. Your fast looking car is a ‘Canadian Controlled Private Corporation’. It might not be a fast car – but that doesn’t matter. The proposed legislation doesn’t post the speed limit: it doesn’t define what a ‘reasonable’ payment for a contribution by a family member to a family business is. The Minister of Finance has not provided the CRA with a device to measure your speed: same problem, ‘reasonable’ is not defined. The amount of your ticket is discretionary because once the CRA determines what they believe is ‘reasonable’, tax on the remaining income is levied at the driver’s top marginal tax rate, or restricts the driver’s access to the capital gains exemption – at the CRA’s discretion. Now you’re off to traffic court (tax court), at incredible time and expense (to you and other taxpayers), to ask a judge interpret what is ‘reasonable’. Maybe the judge will reduce your ticket, maybe not. Good luck!
Our traffic laws would never give a traffic cop this type of discretion, so why would this level of discretion be available to the CRA in our tax system?
Minister Morneau: Please slow down and listen to front-line tax professionals. Canadians deserve a proper consultation on tax reform.
To slow down this rushed and incomplete consultation (consolation?) process, please sign one/all of the petitions below and contact your MP right away. We only have until October 2, 2017 to make our voices heard!
– Change.org: Extend consultation period: Sign this petition