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Canadian tech CEO Forecasts updates to Taxation Programs will be well received

18 Oct 17
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Canadian technology leaders anticipate they will like the new way of passive investing Finance Minister Bill Morneau will unveil in an upgrade of the government’s small-business tax programs on Wednesday.

The beleaguered minister will make his next statement of the week on the way the Liberal government will respond to the outpouring of criticism because its small-business tax proposals have been released in July.

The Wednesday statement in New Brunswick will respond to concerns associated with the passive-investment conditions of the July package. On Thursday, the authorities will aim to address criticism that the changes could adversely affect the intergenerational transfers of family businesses. Changes associated with concerns from Canada’s tech industry with regard to venture capital are scheduled for Friday.

The Globe and Mail reported this week that the government is expected to set a maximum amount for how much passive investing could be run within a small business corporation, like a company purchasing shares in another company, before the proposed new tax regime would apply. The government has stated its aim is to make sure that incorporated small businesses aren’t utilised to create passive investments unrelated to the corporation. Business groups have cautioned that those investments could become regarding the business if they’re necessary during hard times. They also state the investments are an important source of retirement savings.

The government’s new proposal is aimed at striking a compromise and making it clearer that the changes are targeted at high-income Canadians.

John Reid, the chief executive of the Canadian Advanced Technology Alliance, said he’s received a briefing on the government’s revised strategy and forecasts the changes will be very well received in Canada’s tech community. He said this week’s changes will alleviate the controversy that the government has confronted over the taxation proposals.

“Despite how they’ve done it, they have really listened to the specific comments and opinions from the community and have addressed each and every stage,” he said. “Not that we are not going to disagree with a few of the changes that are likely to be rolled out, especially if caps are set for passive income — the way you devote that for retirement or anything — but I think today we have actually set the point that we could have more of a reasonable discussion amongst parties{}”

Mike Woollatt, CEO of the Canadian Venture Capital and Private Equity Association, hasn’t got a briefing on the new changes, but said he’s pleased that the government is planning a particular answer to concerns from the venture-capital community. Tech investors have said higher taxes on passive investment could imply entrepreneurs have less cash to invest in Canadian startup businesses.

Mr. Woollatt said he’ll be watching the details which are unveiled on allowable passive investing, which he included may still be a source of concern when the cap is set too low.

“We have been working really well together, so we’re hoping that they heard us loud and clear,” he said. “Like all tax policy, there is always unintended consequences.”

The government’s strategy to roll out its statements throughout the week — the Business Development Bank of Canada’s small-business week — got off to a rough start on Monday. Prime Minister Justin Trudeau joined Mr. Morneau to get a news conference in Stouffville, Ont., to make a surprise announcement that the Liberals would lessen the small-business tax rate from 10.5 per cent to 9 percent by 2019.

But, Mr. Trudeau received widespread criticism from political columnists and opposition MPs for initially refusing to allow journalists to ask Mr. Morneau questions, telling reporters they ought to speak to him because “you get an opportunity to speak to the Prime Minister.” Along with handling the taxation issue, Mr. Morneau is also on the defensive after The Globe reported that, unlike Mr. Trudeau, he hasn’t put his personal wealth in a blind trust.

Mr. Morneau has stated he followed all the advice he received from national Conflict of Interest and Ethics Commissioner Mary Dawson.

During a meeting in late September with The Globe’s editorial board, Mr. Morneau said the government’s passive-investment modifications are aimed at encouraging small business owners to place “dead money” sitting in corporate structures back to the Canadian market.

“We’ve got hundreds of billions of dollars sitting on the sidelines,” he said. “The amount that gets parked annually is between $25-billion and $30-billion. … So from my standpoint, we have got this rising tax unfairness, one that has only been around for a relatively brief time period, that is by definition likely to increase the inequality between people who could have a Canadian-controlled private company and people that can not.”

Courtesy: The Globe And Mail

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