During a fiery clash in Monday’s leaders’ debate, Liberal Leader Justin Trudeau claimed that Conservative Leader Andrew Scheer’s platform would give a $50,000 tax break to some of Canada’s wealthiest households.
“Why the $50,000 tax break for the wealthiest?”
Trudeau was referring to Scheer’s pledge to reverse changes to the tax system that led to clashes between the Liberal government and small businesses two years ago. Scheer has said that if his government is elected he would lower the rate on small business investments and make it harder for companies to pay dividends to family members.
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Federal party leaders in first English-language debate
University of Calgary economics professor Trevor Tombe said that under the changes brought in by the Trudeau government, businesses were allowed to keep a maximum of $50,000 in “passive income” before the new taxes started.
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“He’s referring to the changes in the small business treatment of passive income,” Tombe told Global News.
“The Liberals don’t allow you to earn income within a corporation if that income exceeds $50,000 per year. Then it’s treated as regular income.”
Tombe said the changes affected about two per cent of privately controlled corporations and that the changes wouldn’t necessarily result in a tax break of $50,000.
“As for the exact dollar amount, that is going to vary completely across these corporations and it will depend how many investment assets they actually have,” Tombe said.
In 2017, the Liberals closed what they said was an unfair tax loophole that allowed the owners of small businesses who incorporated to keep revenue from sources inside their corporations.
READ MORE: Tax cuts for many — and tax hikes on the rich
That revenue was taxed at a much lower rate than if they had counted it as personal income. The Liberals also argued that some people — such as doctors or lawyers — were creating tiny corporations for a tax benefit.
Many small business groups claimed that the Liberals were branding self-employed Canadians as tax cheats.
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Scheer responded to Trudeau Monday night, claiming that he seemed “oddly obsessed” with Ontario Premier Doug Ford.
“First of all, Mr. Trudeau, you seem oddly obsessed with provincial politics,” he said.
“There is a vacancy for the Ontario Liberal leadership. If you’re so focused on provincial politics, go and run for the leadership of that party.”
“Secondly, your tax policy has meant that 80 per cent of Canadian families pay higher taxes than when you took office,” he said.
Scheer is referencing a 2018 study from right-leaning think tank the Fraser Institute that claimed 80 per cent of Canadian households are paying higher taxes than in 2015. The study, however, did not take into account the money received from the Canada Child Benefit.
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Scheer highlighted his plan to lower taxes through the universal tax cut, and several proposed tax credits.
“I am rolling back your tax hikes on entrepreneurs, on small businesses. You called them tax cheats,” he said.
Tombe said while it’s hard to put a definitive number on how much people saved before the changes to the “passive income” rule, it did allow high earners to reduce their taxes.
“It’s a way for very high income individuals to shield investment from taxation,” he said.
— With files from the Canadian Press
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