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Small business owners across the land are still reeling from last month’s announcement by Finance Minister Bill Morneau targeting private corporations and fundamentally changing the way businesses and incorporated professionals are taxed. The tax strategies being challenged can be categorized into three main areas: income sprinkling, earning passive investment income in a corporation, and converting a corporation’s ordinary income into tax-preferred capital gains.

In a previous column, I’ve discussed the proposed income sprinkling rules that would effectively eliminate opportunities for business owners to sprinkle dividends and capital gains among adult relatives, unless they contribute “reasonable” labour or capital to the business.

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But this change, in conjunction with the other two changes, could result in a tax rate as high as 93 per cent, as pointed out by tax lawyer Michael Goldberg of Minden Gross LLP in Toronto, in a report sent out this week to clients. As Mr. Goldberg writes, “The mere proposal of these changes has already thrown the Canadian private business owner tax system into turmoil, and, unfortunately, the Government and the Department of Finance do not seem to appreciate and possibly do not understand the extent of the damage that the (plan) will cause to Canadian business owners, employees of their businesses, and the economy as a whole.”