A possible tax reform solution: Tighten the rules around equivalency

From the start the federal government has couched the issue of tax reform around fairness.  Why should two people earning the same income and doing the same work pay different levels of tax just because one uses a corporation to receive and distribute income?

If this is really the issue, then the solution should be to tighten the CRA rules around equivalency.  If you have two lawyers earning the same income, doing the same work for the same ‘client’ then maybe they should pay the same taxes.  The problem is that if you have one lawyer that earns $150k working for a government agency and another earning $150k working for herself – with no guaranteed income and facing costs not faced by the employee – there is no way they can be considered equivalent.

As for the active vs. passive income argument – small business owners should be given fairly wide latitude to store up income to be spent in the future.  And the sprinkling thing?  There are already rules around this.  Tighten them up a bit respecting that spouses do play an important role in most small businesses.

At the end of the day I believe there is a solution here that would make things more fair without taking away the risk premium that we need to encourage entrepreneurship.