Private Corporations – Giving Credit Where Credit Is Not Due.

As confirmed in the Fall Economic Update (FEU), the Government of Canada has now retreated from some of the private corporation tax proposals set out in the July consultation paper. In what may be described as a partial retreat, the proposal to increase tax on passive investment income will be modified to exclude the first $50,000. Commentators have suggested that this proposal could result in tax rates exceeding 70 per cent of investment income.

Given the public backlash against the July proposals, and to the Government's credit, the FEU provides expanded statistical data in support of the need for tax changes. In a table contained in the economic update, the Government set out data showing that the number of Canadian-controlled private corporations (CCPCs) has grown - on average - by 8.4 per cent per year between 2010 and 2015, and by 8.7 per cent per year between 2001 and 2015. The table also shows data for selected industry sectors, including professionals (defined to include lawyers, notaries, accountants, physicians, dentists and chiropractors). For 'professionals' the corresponding increases were 13.6 per cent and 14.9 per cent. 'Professionals' were singled-out for special mention in the July consultation paper, which included the statement that the number of corporations in professional services had tripled over the last 15 years.

Given my previous article on this subject, (September 15th issue of the Financial Post - Ottawa says there's a 'need for action' on private corporations. Maybe there isn't), I am supportive of the need for greater analysis before embarking on significant changes to the income tax regime. However, the analysis needs to be reliable, and unfortunately, this latest analysis is not.

Helpfully, the FEU states that the data presented were obtained from corporation datasets based on data submitted to Canada Revenue Agency, and I have been able to review limited datasets that are based on the same data. The data are published within the "Open Canada" database, and the latest data available are for 2014. Data are also available for earlier years, and meaningful comparison can be performed. While there are no data specifically available for CCPCs, most corporations appear to be CCPCs, so I have simply considered the population data for all corporations (that submitted Canadian income tax returns). There is a note that 2014 data may be only 96 per cent complete, which would have a minor impact (I ignored this below).

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