Law Times - Newsmakers

THE CANADIAN Bar Association made headlines this fall for joining other organizations to oppose the federal government's proposed tax changes for private corpo- rations. This summer, the federal government announced a three-pronged plan, which it argued would bring more fairness to the Income Tax Act. The changes included restricting the ability of busi- ness owners to sprinkle income with family members and ending the practice of transforming dividend in- come into capital gains. The government was also exploring whether to close a loophole that allows business owners to pay lower taxes on passive investment income held in a corporation. The CBA united with dozens of other business groups in the Coalition for Small Business Tax Fair- ness to call on the government to drop the proposals and to hold a longer consultation. Some lawyers were critical of the CBA's decision to jump into the debate before con- sulting widely with its own membership. More than 175 lawyers signed a petition supporting the proposed tax reforms. The petition questioned why the CBA was using its resources to "act as a tax lobby group" and some lawyers even revoked their CBA memberships in protest of the as- sociation's stance. They argued that the pro- posals did not target lawyers and that they would only affect a small proportion of practitio- ners, who are equity partners or sole proprietors. "The CBA does not speak for us," the petition said. But others have said the CBA had to make a swift decision be- cause of the short consultation period to provide feedback on the proposed changes. The government unveiled the proposals on July 18 and the consultation period ran until Oct. 2. The Coalition for Small Busi- ness Tax Fairness, and by ex- tension the CBA, argued that the proposals unfairly targeted small businesses. Lawyers argued the propos- als would have had negative ef- fects on firms. Jed Chinneck, a London, Ont.-based lawyer, says he worked hard since he opened his practice in 1981 to create a financial cushion for his firm to make it through economic downturns. "Having a bit of financial fat in your organization is crucial for survival when things turn off," he says. He says that the proposals would have meant that money he had put into his firm for his own pension would have been taxed in a significant way. Chinneck adds that the tim- ing of the government's an- nouncement in the summer was also problematic. "That's right in the middle of a time when most Canadians aren't thinking about politics," he says. Tax lawyers argued that the proposed changes would also cause double taxation for corpo- rate clients. Finance Minister Bill Mor- neau has since walked back some of the proposals, includ- ing the one concerning capital gains. But some tax lawyers say the reforms still on the table could negatively affect lawyers. Marion Howard, a tax lawyer based in Campbellville, Ont., says that the original proposals could have exposed lawyers to negligence lawsuits. This is because the proposed changes would have made it prohibitive to incorporate and lawyers who do not have tax expertise would have been advising clients to incorpo- rate to protect themselves legally, Howard says. "They would be going along merrily doing their job and then walking themselves into negligence lawsuits because the tax issues made it prohibitive from a tax point of view to incorporate," she says. While Morneau's recent pronouncements soften this a little bit, it is still possible lawyers would find themselves opened up to negligence claims with the remaining changes, she adds. She says as a tax lawyer she would not advise to incorporate as it is not clear what Morneau is going to do with passive investment rules. But a general practitioner when asked the same question would likely tell clients they should incorporate to protect themselves from legal liability. "They would be out there, doing the best job they could appropriately from a legal point of view, but they wouldn't know the tax issues," she says. "And they shouldn't [and] they can't. That's not their expertise. It's way too compli- cated." Katya Hodge, a CBA spokeswoman, said the CBA still thinks further consultation is needed despite Morneau's pledge not to implement some of the proposals. "Given the complexity of the proposed tax changes, we still believe that more consul- tation is needed to fully understand the consequences of the proposal. We continue to work with the government," she said in an emailed statement. CBA wades into tax fight Some support changes for private corporations, others fight against them BY ALEX ROBINSON, LAW TIMES top stories 2017 top news, newsmakers and cases 13 Instrumental in conducting change. CANADA & USA 1.800.265.8381 | EMAIL info@mckellar.com | www.mckellar.com Advocacy—it's what leaders do. Our dialogue over the last year with the Ministry of Community and Social Services in Ontario helped to orchestrate progressive change in the way the Ontario Disability Support Program (ODSP) treats personal injury settlements. Contact us to find out more. Untitled-2 1 2017-12-01 2:06 PM More than 175 lawyers signed a petition supporting proposed tax reforms for private corporations. © Pressmaster / Shutterstock

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