Canada has an odd problem when it comes to private corporations. According to the country’s Finance Minister, “the government has noticed a huge uptick in the number of people incorporating themselves — 300 per cent over the past 15 years.” Due to the large increase in personal incorporation, some Canadians have been able to take advantage of the country’s tax code, paying less than they would have to under normal circumstances.
“And speaking of tax changes, I want to be clear,” Justin Trudeau, Canada’s Prime Minster said during a recent speech . “People who make $50,000 a year should not pay higher taxes than people who make $250,000 a year.” And that is the crux of the problem.
“There’s some elements in our tax code that provide advantages for people to do that,” Finance Minister Bill Morneau explained. “We’re concerned that if we don’t move forward with some changes that create a level playing field, that we could find ourselves down the road with two classes of Canadians: a class of Canadians that are able to incorporate and find themselves in a lower tax situation and a second class that aren’t able to incorporate and end up paying a higher rate of tax.”
Although this makes sense in a vacuum, the repercussions of the new tax will be felt by everyday small businesses. Whether the tax hike is a crackdown on the abuses of incorporation or if it is just a new way to fund bigger government is hard to say, but in any case, there is evidence for the former.