Finance Minister Bill Morneau is taking aim at "income sprinkling."

Finance Minister Bill Morneau is taking aim at "income sprinkling."
Photo Credit: CP Photo / Justin Tang

Finance minister aiming to increase tax revenues by closing of some loopholes

Finance Minister Bill Morneau has unveiled a tax proposal that will affect wealthy Canadians.

Morneau says Ottawa wants to close loopholes that help as many as 50,000 families to avoid paying higher tax rates.

He is taking aim at a practice called “income sprinkling” that mainly affect professionals like doctors and lawyers who incorporate themselves and then distribute money to family members who earn less, lowering the professionals’ tax rate.

It’s estimated that “sprinkling” can save a business owner up to $35,000 in taxes annually.

The finance minister says a “reasonable” test will be instituted to protect legitimate family businesses.

The test will examine how much a family member actually works in any given business.

Finance Canada also plans to target individuals who claim regular business income as capital gains instead of taking taking money from their businesses as a dividend.

Another proposed measure will target investment income held by a corporation.

Currently, an individual–as a corporation–can invest in stocks and other financial products and when they withdraw the profits pay only the lower corporate tax rate.

Since the 1970s, the number of Canadian corporations in Canada has increased eight-fold while the gap between personal tax and corporate tax rates has grown to 37.2 per cent.

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