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Tax reforms for private corporations need to be phased in, not slapped down: Jonathan Kay

Tax reforms for private corporations need to be phased in, not slapped down: Jonathan Kay
From CBC - September 23, 2017

"Right now, [Canadians] have a system that encourages wealthy Canadians to use private corporations to pay a lower tax rate than middle class Canadians," Prime Minister Justin Trudeau told the United Nations General Assembly this week. "That's not fair, and we are going to fix it."

One can only assume that attending delegates from around the world were on the edge of their seats. If there's one thing that kills at the UN, it's a granular discussion of domestic tax policy.

Or so one might imagine, based on the intenseoutcry from Canadian small business ownersdoctors, especiallywho have mobilized in opposition to tax reform for private corporations.

'Shaken. Betrayed'

In an opinion article entitled "Trudeau's sinister stand against doctors," for instance, a Georgeton, Ont. family physician declares herself "Shaken. Betrayed. Ashamed for my life's work." She claims the proposed tax changes mean it is now "open season on doctors," and that the prime minister has "mocked my family's sacrifice."

While such claims may seem over dramatic, there is no doubt that the new tax regime, if enacted, will cost small corporate business owners a lot of money.

The PM doesnt get it, attacking docs as wealthy undermines their long hrs & hard work to provide quality patient care. #UnFairTaxChanges

@OntariosDoctors

Free-market advocates, such as Andrew Coyneat the National Post, argue that the existing tax benefits for small corporations make no sense: "There are lots of good reasons why someone might wish to incorporate. There is no good reason why the tax system should, in effect, pay them to do so."

And he's right. Which is something to keep in mind if we ever get the opportunity to tear down the tax system and create a new, more logical one its place (as the Americans doevery 30 years or so).

But that's not what is being proposed here. Instead, the government seeks to rewrite some very specific sections of the tax code, targeting a very specific set of existing corporate arrangements, in a way that will dramatically affect a very specific set of earners.

The government argues that the existing arrangement gives an "unfair tax advantage" to professionals whose income and circumstances permit them to use small corporations. And that, too, is perfectly true. But that unfair advantage already has been imputed into the many contractual decisions that these professionals have made since the current tax structure was put in placein 1972.

Over the decades, theOntario Medical Association and its other counterparts across Canada have repeatedly renegotiated the rates they receive for providing medical servicesand these negotiations always have taken place in the shadow of the governing tax structure.

Bargaining without tax advantages

Reliance on the law

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