PwC Canada's Submission to the Department of Finance - Tax Planning Using Private Corporations

(Toronto, October 3^rd, 2017) On July 18, 2017, the Department of Finance released a Consultation Paper directed at the taxation of private corporations and their shareholders (the "Proposals"). Over the past 75 days, PwC Canada has analyzed the ​Proposals in detail, participated in discussions with many of our ​over ​8,000 clients who operate and own private businesses, and consulted with several business and industry groups who also represent ​the many Canadians who ​could be impacted by the​ Proposals if they are not altered. On Monday October 2, PwC Canada ​delivered its submission to ​the Department of ​Finance which ​is available using the following link​ in which we outline several concerns and recommendations.

​Our submission provides the Minister with a comprehensive technical response including the following points:

1. Transitioning a family business to family members will have a significantly higher tax cost than if the business were sold to a third party under these proposals. Is this a desired outcome under the new policy?
2. The 75-day ​c​onsultation ​p​eriod is inadequate given the magnitude of these changes. More time is required to ​consider ​both the intended and unintended consequences of these Proposals. ​
3. The ​Proposals have retrospective application. While Finance has stated publicly that this was not their intent, PwC has identified several areas where this is not the case. The Proposals will have a cost to taxpayers who have already entered into transactions in compliance with the current tax legislation. Retrospective application creates uncertainty amongst taxpayers. Certainty in policy is an important pillar for all individuals and businesses so they can plan with confidence.
4. Government communications to date suggest that these Proposals close "loopholes". PwC is of the opinion that the proposals reflect a change in policy given that many of the rules that are proposed to be changed were specifically designed by Finance and have been in place for decades or even longer.
5. The impact of the ​Proposals on the Canadian economy ​should be considered further. ​The Government has suggested that these changes only impact the top 1% of income earners in Canada. We believe that the Proposals will impact a far greater number and we recommend that further analysis be completed to ensure that the Proposals are not more far reaching than intended.

One of our biggest concerns is that the proposed rules have many unintended consequences that will not be helpful to private businesses of all sizes and may act as a deterrent in the short and medium term for entrepreneurs operating or considering operating in Canada. This concerns us as private companies are an important backbone of the Canadian economy.

PwC Canada strongly recommend​s​ that the Minister of Finance engage a group of independent experts, from many disciplines and stakeholders​,​ to ​further ​study the ​Proposals and their impact on both tax policy and the broader economy. This should include an assessment of the potential impact​ of the Proposals​ on future investment in Canada ​and its ability to attract and retain top talent.​ ​PwC ​Canada is of the opinion that ​the Proposals require a more in depth analysis. We are supportive of changes to the tax laws but believe they need to be reviewed and considered from the perspectives of many stakeholders.