In principle, a government proposing tax changes to bring fairness and neutrality to our tax system is welcome. The present federal tax-reform proposals aim to target three key areas: (1) limit the spreading of income as capital-gains, (2) investment in passive assets using corporate after-tax earnings, and (3) corporate earnings paid out as capital gains instead of taxable dividends. However, the current reform proposals appear to have missed their intended target of wealthy, big businesses that try to avoid their taxes. In addition, these changes overlook the principles in the current system for small-business tax treatment, that were a result of balance and compromise over decades, and recognize the considerable financial risk they take when starting, operating or expanding their businesses.

Key Takeaways:

• Even though these reforms are aimed towards big businesses and high-income individuals, smaller businesses are the unfortunate casualty.
• While having a relatively little impact on revenue for the federal government, the new rules on income splitting will have the consequence of complicating tax compliance for family enterprises.
• Small-business owners seeking to retire with a modest amount of savings could see themselves hit with a giant tax bill.

“Expediency should not come at the cost of complexity, inequity, double taxation and retroactivity.”

Read more: How the federal tax-reform proposals miss their target