Finance Minister Bill Morneau is adjusting his tax proposals on passive income so only three per cent of the “most wealthy” privately owned corporations will have to pay higher taxes.
Morneau confirmed the changes Wednesday at a cafe in Hampton, N.B., a small community east of Saint John in an area where the Liberals’ tax reforms have not been well-received.
The minister said the system will now allow a threshold of $50,000 of passive income investment annually to be sheltered.
He says that will help small business owners put money away for retirement and parental leave, but help reduce the practice of privately held firms using the method purely as a way to cut taxes.
“By providing a window so they (business owners) can continue to have money inside their business, we’re creating the opportunity for people to continue to save, to continue to be able to have their retirement taken care of,” he said.
“But (it’s) not an opportunity for the most wealthy to use this vehicle purely as a tax-planning strategy. That’s the balance we have achieved here.”
The tweak to Morneau’s original proposal comes after an onslaught of complaints that warned cracking down on passive investments could hurt middle-class entrepreneurs who use their companies to save for economic downturns, sick leaves and parental leaves.
However, the finance minister said there’s between $200 billion and $300 billion in assets sitting in the passive investment accounts of just two per cent of all private corporations _ or about 29,000 companies out of 1.8 million private corporations.
He said he’s made the changes after lengthy consultations with small businesses around the country.
To emphasize the point, Morneau made the announcement in a cafe, surrounded by several female entrepreneurs.
Businesspeople in Hampton have been critical of the Liberal reforms, and Liberal MP Wayne Long _ who represents a neighbouring riding _ was removed from two committees for dissenting over the changes.
Morneau met privately beforehand with about 10 people, including Jason Stephen, the former president of the N.B. Progressive Conservatives.
“We have people arguing exactly how we should move forward, and we need to listen,” he said.