Finance’s proposal would overturn settled law: lawyer

The comment period for Finance’s proposed tax changes for businesses is officially closed, and Finance Minister Bill Morneau says he’s open to making changes to the proposal.

Read: Urgent: Talk to business clients ahead of income sprinkling measures

While critics contend the proposal hurts middle-class business owners, it could also overturn decades of settled law.

The Supreme Court has approved income sprinkling twice, writes Robert Kepes, a partner at Morris Kepes Winters, in The Lawyer’s Daily. (Registration is required to read the article.)

The two cases — McClurg v MNR [1990] 3 S.C.R. 1020 and Neuman v Canada (MNR) [1998] 1 S.C.R. 770 — involve private companies with voting shares owned by the husbands and non-voting shares owned by the respective wives. One wife was actively involved in the business (McClurg) and one wasn’t (Neuman).

The Supreme Court upheld the discretionary dividends paid to both wives.

Kepes writes in Lawyer’s Daily that the court rejected the government’s argument that the spouse’s lack of business involvement made the dividend taxable in her husband’s hands.

“It’s disingenuous for the government to characterize entrepreneurs as using tax loopholes when they are following the decision in Neuman,” wrote Kepes.

Read the full article (requires registration).

Also read:

How proposed tax changes target income sprinkling

Problems with Finance’s passive investing proposals

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.