Wealthy benefit most from private corporation loophole

“What’s clear from the CCPA report is that it’s people with high incomes who benefit the most from the private corporation loophole.” — Larry Brown, NUPGE President

Ottawa (05 Oct. 2017) — A recently released report from the Canadian Centre for Policy Alternatives (CCPA) confirms that it is wealthy Canadians who are the main beneficiaries of the private corporation tax loophole.

CCPA looked at income sprinkling – paying dividends to family members who aren’t involved in the corporation – and found that only 5 per cent of families that own private corporations benefit. That’s one-third of one per cent of all Canadian families.

But of those that do benefit, the overwhelming majority are people with high incomes. Two-thirds of the tax expenditures due to income sprinkling went to the wealthiest 10 per cent of families. 47 percent went to families with incomes of more than $216,000 a year.

“What’s clear from the CCPA report is that it’s people with high incomes who benefit the most from the private corporation loophole,” said Larry Brown, President of the National Union of Public and General Employees (NUPGE).

Well-heeled professionals main beneficiaries of private corporations loophole

The CCPA report also confirmed that those most likely to use the private corporation loophole are medical professionals, like chiropractors or doctors. Others who are likely to use it are accountants, lawyers, and real estate agents.

While those trying to keep the loophole like to portray farmers, or mom and pop restaurants, as the main beneficiaries, the reality is very different. The percentage of farmers, or mom and pop restaurant owners, using the private corporation loophole is much lower than the percentage of upper-income professionals.

Most farmers and mom and pop restaurant owners are not making enough money to benefit from the private corporation loophole. As the National Farmers Union (NFU) points out, most farmers are just trying to keep up with their loan payments. And, as the NFU also pointed out, “if a farm is prosperous enough to clear well over $200,000/year after all expenses are paid, it should not be a hardship to pay taxes at the same rate that someone would who earns that much money in a salaried position.”

Closing the private corporation loophole should be just a start

The private corporation loophole is only one of many tax loopholes that favour the wealthy. The CCPA report also calls for the closure of loopholes that allow income from stock options and capital gains to be taxed at lower rates than earned income. We regularly hear about how wealthy individuals and corporations are using tax havens to avoid paying their share. There have been questions about tax rules for family trusts, such as those both Justin Trudeau and Bill Morneau have been involved with.

To make the tax system fairer, all of these loopholes must be closed.

NUPGE

The National Union of Public and General Employees (NUPGE) is one of Canada's largest labour organizations with over 370,000 members. Our mission is to improve the lives of working families and to build a stronger Canada by ensuring our common wealth is used for the common good. — NUPGE