New tax reform explained (as best as possible)

Full disclosure — this piece was inspired by the work done by reporters at Vice News. Since this proposed change will impact thousands of Canadians, I thought I’d give it a shot to try and explain it.

The federal Liberal government’s tax reform plans aren’t sitting well with some Canadians especially from the medical community, which is putting strong opposition against the change.

This shouldn’t have come as a surprise to anyone paying attention as the 2017 budget laid out the plan to tighten up loopholes that could be seen as being “unfair” to the middle class.

In fact, the budget document states “the government is taking action to ensure that the tax system is fair for all Canadians. The government will continue to improve tax fairness for Canadian families by closing loopholes, eliminating measures that disproportionately favour the wealthy, and cracking down on tax evasion, so that every Canadian has a real and fair chance at success.”

So what does this mean? The main issue at the moment is around what is known as “income sprinkling” (Allan Lanthier goes into greater detail on what this is in the Financial Post).

Essentially, businesses and organizations who earn a high income can give some of that money to family members who are in a lower tax bracket in order to reduce the amount of taxes they owe.

For example, say John earns $200,000 in a year while his daughter, Jane, earns $40,000 a year. Jane pays less than John in taxes because she makes less than him. However, John could divert some of his income to Jane and as a result, pay less taxes himself.

Prime Minister Justin Trudeau told media last week that he believes the changes will make the tax system more fair.

The Canadian Medical Association is disagreeing.

In a statement posted online, the CMA argues the “changes will adversely affect female physicians and women entrepreneurs, and the government needs to be aware of the unintended consequences associated with their tax proposal.”


The CMA says female doctors use the current system as a way to support their families while on maternity leave or during long periods of time away from work. CMA goes on to say that the changes could have a snowball kind of affect that could impact the level of care being given.


“As a government with a feminist agenda, we ask Minister Morneau and the Liberal caucus to consider how women entrepreneurs, small business owners, professionals, and doctors will be disadvantaged by the proposed changes,” the statement says. “We respectfully request that the government consider our concerns in its gender analysis.”

While the CMA is adament against the changes, it seems the general public doesn’t hold a strong opinion one way or the other. At least that’s according to a Campaign Research Poll. Specifically around income sprinkling, 41 per cent out of a sample size of 1,700 approved making the changes while 32 per cent were against. About 27 per cent didn’t have an opinion on the matter.

At the moment, Morneau is in the middle of his “listening tour” of the country to get feedback on the proposed changes.

This means that nothing is set in stone just yet.

SIDE NOTE: It should also be noted that this is only a part of the Trudeau government’s plan on tax reform including the promise of spending $523.9 million over five years to prevent tax evasion and improve tax compliance.

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