Posted: Thu Nov 23, 2017 1:26 pm Post subject: PBO: Taxing passive income to yield big returns
Changes to passive income rules could net feds $6 billion, PBO says
By The Canadian Press — Nov 23 2017
OTTAWA — Parliament's spending watchdog says Liberal changes to passive investment rules for small businesses could rake in up to $6 billion annually in new tax revenues after a decade.
The parliamentary budget office's report out today says the new tax revenues would likely start out at up to $1 billion in the first year that new rules come into effect, and continue to rise.
The report says about 47,000, or 2.5 per cent of Canadian-controlled private corporations, would be affected by the changes the government is proposing.
Finance Minister Bill Morneau said last month the Liberals would establish a threshold of $50,000 on passive income per year, which would be equivalent to $1 million in savings, based on a nominal five per cent rate of return.
The PBO says in its report that it can't be certain about its estimates without more details from the federal government.
The report warns the figures don't account for any changes small business owners may take to avoid paying more taxes, which could decrease revenue estimates by as much as 15 per cent.[emphasis added]
The last paragraph is the crucial factor, and I applaud the Canadian Press for mentioning it.
I can't judge for sure, but if you divide a $billion by the number of companies affected, it would extract an average of $21,000 out of each of them in the first year, rising to about $128,000 in 2023.
But the load isn't likely to be evenly distributed. This is probably one of those cases where 80% of the income is made by 20% of the group. For them, they would be looking at an average hit of $85,000 in the first year, rising to $510,000 in year six.
If they don't do something. How likely is it that they won't react? It would be like having a financial tapeworm -- the good time to act is as soon as you find out!
A new tax interpretation that will effectively tax a tax shelter with a tax that increases six-fold over six years? What else is there to know?
Do you know how much you have to collect, in dividends and interest -- which is, I think, what a "passive corporation" is, a way of accumulating and re-investing income producing securities -- to cover the average $21,000 new taxes? A lot.
After all. they have an increasing incentive to base themselves in the US with Trump changing the numbers in a different direction. Justin's gang appear to be helping with that by threatening a heavier tax load in Canada. Why wait?
This might very well be investment capital. Investment capital, they tell us, is the key to economic growth. This may be one of those cases where they actually admire Communist China ...
Another job-killing measure would be my bet. They don't know what they're doing ...
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