Canada launches consultation into limiting use of corporations for HNWI tax planning

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The Canadian government this week has launched a consultation into whether the use of private corporations by wealthy individuals for tax planning purposes should be restricted, as set out in plans published by the government.

The plans, which were referred to earlier this year in the government’s 2017 budget statements, were published on Tuesday on the Department of Finance’s website.

Reaction to the plans varied, with some, including Tim Cestnick, an author and founder of WaterStreet Family Offices,   arguing in the Toronto Globe & Mail  that some small business owners would inadvertently be made worse off  if the changes were to go through, and that “a lot of [the proposed] changes [would] do nothing but make our convoluted tax law even more complex”.

Cestnick’s article was headlined “Proposed tax changes would shake the small-business world”.

An analysis by a team of legal experts at the Canadian law firm Davies Ward Phillips & Vineberg concludes that the proposed changes would “significantly increase the complexity of the tax rules applicable to private corporations, and reverse many long-standing tax policies that have encouraged business growth”.

‘Improve fairness’

However, in a statement outlining the thinking behind its consultation, the government said it saw the consultation as part of its efforts “to improve the fairness of Canada’s tax system”, which it suggested could be enhanced “by closing tax loopholes and amending existing rules to ensure that the richest Canadians pay their fair share of taxes, and that people in similar circumstances pay similar amounts of tax”.

It noted that the effort was in addition to measures being taken to curb the use of tax havens, as part of its crackdown on international tax evasion and avoidance.


“Many of the richest Canadians are unfairly exploiting the tax rules designed to help businesses thrive,” minister of finance Bill Morneau said in a statement accompanying the announcement of the consultation.

“We know that businesses, including small businesses, help grow the Canadian economy. These tax advantages are in place to help these businesses reinvest and grow, find new customers, buy new equipment and hire more people.

“We want to make sure those rules are used to do just that, and not to give unfair tax advantages to certain – often high-income – individuals.”

The consultation closes on 2nd October.