Jonah and Emily live on a leafy street dotted with stout detached brick homes in midtown Toronto. They live with their sons, aged 18 and 21. Both sons attend university full time.

Jonah works out of his home, having incorporated a consulting business a decade ago that markets his expertise in time management to Canadian corporations. Emily does not work.

The business — Be the Best You Can Be!! — earned $220,000 in 2016 before tax. BBB!! paid Jonah $100,000 in salary and “sprinkled” the remaining after-tax profits to Emily and the couples’ sons as dividends. (Emily and the boys paid $1 each for their shares in BBB!!)

The contribution made by the two sons to the enterprise consists of mocking Jonah at the dinner table for his inappropriate acronymic social media terminology. The offspring have no meaningful involvement in the company, though Jonah sees them as “media advisers.” Jonah consults his sons when his computer misbehaves. The sons have been deployed from time to time to distribute BBB!! flyers, which Jonah refers to as “administrative assistance.”

After all this shimmying, I mean sprinkling, the total tax paid on the $220,000 was about $44,000.

Susan lives next door to Jonah, Emily and the two man-boys. Susan pulls down $220,000 a year as vice-president of human resources for a mid-sized company. On this, Susan pays income tax of $79,000.

Susan is aware of the presence of BBB!! next door (Jonah keeps leaving fridge magnets in her mailbox, hoping for a corporate referral). She’s not aware that Jonah’s diligent income sprinkling translates into a tax burden that is $35,000 lighter than her own.

The above example, slightly embroidered by me, is taken from the government’s July call for comment on its proposed tax changes. Is this not a case, as the government insists, of a high income earner gaining an unfair tax advantage?

Yes it is.

And it is an example of the ways in which the greatest tax benefits can accrue to the wealthiest.

It’s well worth noting that the dividends earned by offspring skew toward family members in the 18 to 21 age bracket — in other words, when the children are young and likely penniless. (Men account for more than 70 per cent of high income earners who have adopted an income sprinkling strategy.)

Prime Minister Justin Trudeau says the government will move forward on planned tax reforms despite resistance from some small businesses and several Liberal MPs. Conservative Leader Andrew Scheer calls the plan a ?cash grab.? (The Canadian Press)

Even past attempts to stanch the flow of income to minors haven’t been altogether successful. Some high income taxpayers cottoned on to a circumvention strategy by sprinkling tax-deductible interest payments to minors.

The message from the Liberal government is clear: income sprinkling allows fellows like Jonah to “opt out” of the progressivity of the income tax system. To quote from the July paper: “This is fundamentally unfair, and erodes the tax base and the integrity of the tax system.”

I have not described the sum of the government’s initiatives. Holding a passive investment portfolio inside a private corporation and converting a corporation’s income into lower-taxed capital gains are the other two.

Read more:

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Critics have attempted to blow off the targetting of income sprinkling as financially of little consequence — the government forecasts that it will draw additional revenue of $250 million annually once new measures are implemented. And fear that the negative impact will land where it should not — the family-run business that relies on the steady contribution of offspring.

The Liberals were clear in their election run-up and more so in their first budget in the spring of 2016 that they were moving in on high-net-worth individuals who use private corporations to reduce or defer tax. And surely it’s reasonable to expect that a family member’s contribution to a private corporation must be of measurable value.

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The deadline for comment on these changes, set for Oct. 2, fast approaches.

On the other hand, it doesn’t approach quickly enough. With all the howling and screaming in the House one would think that the Liberals are off message, or have pulled a fast one.

Canadian-Controlled Private Corporations (CCPC) have been a mounting issue for years. The Department of Finance notes that the number of CCPCs grew by 600,000 to 1.8 million between 2001 and 2014. It’s long past time for the government of the day to address when they are appropriately used, and when they are not.

jenwells@thestar.ca