OTTAWA — New Democrats are slamming Liberal Leader Justin Trudeau for suggesting the preferential tax rate for small business is being abused by millionaires to dodge taxes — even as they admit there's a problem and are proposing a similar solution.
The difference between the two parties lies in how big they think the problem is.
NDP MP Charlie Angus says abuses are "the exception" whereas Trudeau last week told CBC's Peter Mansbridge that a "large percentage" of small businesses have been created strictly to help wealthier Canadians save on their tax bills.
Like the Conservatives and the NDP, Trudeau is committed to reducing the small business tax rate to nine per cent from the current 11 per cent.
But he says the small business tax system needs "tweaking" to ensure it's aimed at small businesses that actually create jobs, not used as a tax dodge by wealthy individuals, such as doctors and lawyers.
Angus admits there are abuses and points as proof to the numbered company Trudeau set up to receive about $1.3 million in income he earned as a public speaker between 2006 and 2011.
Nevertheless, Angus insists it's a relatively minor problem that can be fixed with a "tweak" — the same undefined fix Trudeau is advocating.
"These are things we can tweak," Angus told a tele-news conference Saturday.
"Mr. Trudeau just tried to claim that the exception is the rule. We say he's wrong, that the vast majority of small business and medium-sized business in this country are the job creators. So there may be a few out there who are not, we will look at those issues."
Angus demanded that the Liberal leader apologize for smearing "the hard-working small mom and pop (business) owners across this country" as tax cheats. In the next breath, he accused Trudeau of being a tax cheat, demanding that he explain whether his own numbered company was used "to beat the taxman."
Trudeau last week did not deny claiming the preferential small business rate for his public speaking income, saying he "followed all the rules."
Various academic and think-tank studies have found that the preferential small business tax rate disproportionately benefits wealthy individuals who incorporate their businesses in order to reduce their personal income tax burden, split income with family "shareholders" and avoid capital gains taxes.
Economist Jack Mintz has estimated that 60 per cent of the small business deduction goes to households with incomes of more than $150,000.
Studies co-authored by former assistant chief statistician Michael Wolfson have found that the federal treasury loses at least half a billion dollars annually in tax revenue that would have been paid had individuals not been able to funnel their personal income through corporations. Wolfson has estimated that five to 10 per cent of small businesses are essentially tax shelters.
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