|By Morley Surcon,
Vice-President, Western Canada at Eagle
Much has been said about the “Gig Economy” over the past couple of years. In today’s frenetic and “instant gratification” society, there are clear data suggesting that short-term contract work is growing in popularity for both workers and businesses who purchase their services. However, recently Canada’s Federal Government has been actively moving towards reforms in the tax laws meant to close “loop-holes” in the system to ensure everyone “pays their fair share”. The problem is that governments have a terrible track record — when it comes to making policy changes, there are often negative, unintended consequences.
The changes proposed will have an impact on independent contractors. There are three areas that the government wants to address:
- Limiting the potential for income splitting between family members (also referred as “income sprinkling”)
- Reducing the potential to earn “passive income” on monies that you decide to leave in your businesses vs. paying out to yourself in the form of salary or dividends
- Stopping the conversion of income to capital gains
Are there people/small businesses that may take advantage in these areas? Most likely. However, the saying “tossing the baby out with the bath water” comes to mind. There are no shortages of commentary online about the potential impact of these changes. I’ve included links to many separate articles to legitimate news sites at the bottom of this blog in the event you would like to read more about this. But suffice it to say, there are likely to be significant consequences to you directly. Reasonable advice is offered in Armando Iannuzzi’s article on KRP’s blog entitled The good, the bad and the ugly of Ottawa’s proposed corporate tax changes where he answers the question: What should business owners do to prepare for these proposed tax changes? He suggests that there is no benefit to paying for legal or accounting work at this time as nothing is written in stone just yet. But you should keep “…these developments on your radar” says Iannuzzi, and ensure you have open lines of communication with accountants you trust.
Eagle isn’t a legal firm or accounting company, so we don’t provide specific advice to our contractors. We are watching this situation as it develops and are actively participating in industry organizations such as ACSESS and, as part of these groups, we are lobbying the government on the contracting community’s behalf. We are a bit surprised at how little the IT contractor community is saying about the proposed changes. Certainly, we are hearing from the medical profession, farmers and small business in general.
Are you following this as it develops? Do you have thoughts you’d like to share with our readership? I encourage you to leave your comments below!
Links to news websites that discuss the proposed changes: