Income sprinkling is a key method of shifting the tax burden from individuals to corporations, the report says.
Wealthy Canadians can now legally reduce their tax obligations by routing their incomes through private corporations. They then pay salaries to family members, such as their children, who are subject to lower personal tax rates or none at all.
The government is working on new rules that would “help to determine whether compensation is reasonable, based on the family member’s contribution of value and financial resources to the private corporation,” reads the report.
Morneau writes: “When the rules are used for personal benefit, they are not contributing to growing our economy. Rather, such practices can undermine confidence in our economy by giving tax advantages to a select few. We don’t think that’s fair.”
As an illustration, the government report presents the hypothetical comparison of two wealthy Canadians who both earn $220,000.
One of them,