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w w w . c a n a d i a n l a w y e r m a g . c o m A P R I L 2 0 1 9 49 L E G A L R E P O R T "It's a different form of access to justice — or an absence thereof — that no one ever talks about," he says. A significant change in Timokhov's practice has come from the tax changes regarding passive investment assets of small businesses, he says. Businesses with annual income between $450,000 and $600,000 — depending on the province — pay a nine-per-cent federal income tax. The Liberal reforms reduce that limit by $5 for every dollar of investment income above $50,000. So, small businesses with too much investment income remove themselves form the small business tax rate. "The impact is very much is to discourage small business owners from the accumulation of investment assets," says Timokhov. "The government did not really offer any alternatives," Timokhov says. "So, if you work hard, the only alternative that the government basically suggested is to take money out of the corporation, pay a 45- to 49-per-cent rate on dividends. If you pull out of a corporation and invest what you have, of course, you immediately face a 35-per-cent inefficiency on a cash basis." This is a challenge, he says, because the system that was changed had been established for almost 50 years, creating a cultural shockwave on businesses. Not for lack of trying, the tax bar and accounting industry have not figured out a way around the new provisions. "There are no loopholes at this point," he says. There are three aspects to the Liberal tax changes that con- cern Moody. The tax changes concerning private corporations — including the income splitting and passive investment for small businesses, a new rule placing a capital gains tax on cer- tain inter-corporation dividends and the changes to the small business deduction. "Those three alone are so bloody complex that, in my view, most private corporations and their shareholders will struggle mightily to comply and, in many cases, I'll suggest that they just won't comply," he says. "They'll just throw up [their] hands or the advisors won't even know that they're not complying because it's so complicated." He says the new rules on income splitting are "some of the most complex rules I've ever seen in my entire career." Morin says to help tax filers, the CRA offers a "free liai- son officer service" to small-business owners and the self- employed, adding that the agency published a guide on its website on the new tax rules and has been engaged with professional stakeholders including CPA Canada to provide further guidance and interpretation on the changes. While complexity is fine for multinational corporations with immense legal teams, Moody says, this legislation applies to a broad audience, including many citizens without the resources to hire tax lawyers or tax accountants. "That — to me — is just foundationally unfair," Moody says. Enhance your presence on Canada's largest legal directory AVAILABLE ONLINE AND IN PRINT Containing contact information for more than 66,000 judges and legal professionals, more than 27,500 law offices, government departments, and law related offices, canadianlawlist.com attracts more than 325,000 page views a month and 110,000 unique visitors! Book your enhanced listing today! Contact Colleen Austin at 416.649.9327 or colleen.austin@tr.com www.canadianlawlist.com ntitled-7 1 2019-03-13 1:45 PM Felesky Flynn LLP is a recognized leader in Canadian and international tax matters. For over 40 years our dedicated focus to tax law has allowed the Firm to provide our clients with exceptional quality service backed by a team comprised of professionals with reputations built on expertise and integrity. At Felesky Flynn LLP, we rigorously adhere to a collaborative practice approach which allows us to direct the collective knowledge of the firm to solving client's tax problems. This approach enables us to provide consistent top quality tax advice to our clients. We offer unique solutions to your unique problems. Our lawyers have the experience and technical skills to provide clients in all sectors with business-driven legal tax advice. CALGARY 5000 Suncor Energy Centre 150 - 6 Avenue SW Calgary, AB T2P 3Y7 Tel: (403) 260-3300 Fax: (403) 263-9649 E-mail: felesky@felesky.com EDMONTON 2610 Edmonton Tower 10111 – 104 Avenue NW Edmonton, AB T5J 0J4 Tel: (780) 428-8310 Fax: (780) 421-8820 E-mail: edmonton@felesky.com SASKATOON Suite 100 728 Spadina Crescent East Saskatoon, SK S7K 3H2 Tel: (306) 952-0894 Fax: (306) 952-2439 E-mail: saskatoon@felesky.com www.felesky.com ntitled-6 1 2018-12-12 3:18 PM

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