Thank you, Mr. Chair.
I want to start by agreeing with the previous comments by the witnesses regarding the private corporation proposed tax changes.
Thomson Jaspar and Associates is a mid-sized CPA firm in Saskatoon. We deal exclusively with small businesses, including farmers and professionals, providing services and advice to 1,200 private corporations.
We believe major modifications to the proposed private corporation income tax measures released on July 18, 2017 need to be implemented to ensure that Canadian small businesses do not suffer employee retraction and losses in productivity. Small businesses are a driving force behind innovation. The proposed changes remove the incentive to pursue small business, which will have a drastically negative impact on competitiveness in our global economy.
Our submission—and I apologize, we were invited to the committee on Friday—includes a copy of the letter we have written to the Department of Finance in response to the proposed small business corporation income tax changes and three examples that illustrate the negative impact the proposed tax changes will have on small business owners, physicians, and start-up companies. As well, we offer our firm's proposal, which I would like to outline now.
We believe income splitting should be allowed for private corporations to recognize that family capital is at risk and that family members contribute in non-measurable ways toward the success of a business. We also believe that all families across Canada should be entitled to a form of income sprinkling. Therefore, we propose the reintroduction of a modified version of the family tax cut, enabling all Canadians to benefit from income sprinkling.
To make up for the lost revenue of our proposed measure, we would suggest eliminating most stock option deduction benefits. We realize that stock options are a legitimate form of compensation in the high-tech start-up sector. The stock option benefit in this sector could be maintained while eliminating it for Bay Street corporate executives, the true 1% of high-income earning Canadians that the proposed tax measures are intended to target.
To prevent the conversion of dividends to capital gains, we propose a simpler alternative to the draft legislation accompanying the discussion paper. A different system could be adopted whereby long-term capital gains, for example, on assets held for five years or longer, are taxed at the current 50% inclusion rate, but short-term capital gains, held for less than five years, would be taxed at a higher inclusion rate of 75%. If this were to be implemented, the personal income tax rates on dividends and short-term capital gains would be comparable, eliminating any benefit from converting dividends to capital gains.
We believe these suggestions would provide three benefits. The first would be increased revenue for the treasury. Taxpayers had been expecting such an increase in the last federal budget and we believe were prepared to accept such an increase. The draft legislation in this area would not be needed, and therefore simplification of the Income Tax Act would be the second benefit.
The third benefit would be the elimination of the unintended income tax consequences that the draft legislation has on farm and family business succession planning. It has been well documented that the draft legislation would negatively impact succession planning, because the income tax resulting from a sale to a third party would be more favourable than if the farm or business were sold to a family members. Our proposal eliminates the need for the draft legislation in this area, and therefore eliminates this major area of concern amongst income tax practitioners.
Thank you very much for your time.