The federal finance minister’s goal is to curb the use of incorporation as a tax-shelter device. The vast majority of people who incorporate are among the top 5 per cent of Canadian income earners. The current widespread misuse of this device is a means by which everyday taxpayers subsidize the wealthy.
For Ottawa, the nub of the issue is the estimated $27 billion of surplus, or “passive,” funds accumulating in “professional medical corporations” and in incorporated small businesses. Those passive funds benefit from the low small-business tax rate, but contribute nothing to the business. They serve to enrich the incorporated professional or entrepreneur at the expense of other taxpayers.