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Could Changes to Canadian Tax Law Prompt Interest in US Business Visas?

Canada’s Liberal government has proposed changes to the tax law that would limit options to small-business owners. Changes would close the “loopholes” the government claims give “wealthy, small-business owners an unfair tax advantage over other Canadians.” With the current system, small-business owners are able to transfer some of their income to family members who have lower personal tax rates, known as income sprinkling. The government would aim to eliminate this system, which they estimate would provide an additional $250 million annually in federal revenue. The second reform would “limit the use of private corporations to make passive investments in stocks or real estate” rather than directly in the company, which would “ensure taxes on passive investments inside a corporation are treated the same way as those outside the corporation.” Finally, the proposal would aim to limit small-businesses’ ability to convert their income into “capital gains” which are taxed at a lower rate. So how does this relate to immigration?

The changed law may push small-business owners to move their businesses to the United States, so that they are not being directly impacted by the new limitations. While Canadian companies can often expand their businesses to the United States, simply expanding would not make them exempt from paying the Canadian tax. Therefore, the most viable option for small businesses would be to shut down their Canadian business completely, and start anew in the United States. To do so, the business owner would apply for an E2 investor visa. Once received, the E2 visa would apply not only to the business owner, but also to their employees, allowing them to continue working for the company.

The Canadian government is still in a period of consultation regarding this controversial proposal, which will end on October 2nd. Many Conservatives have opposed the changes and are actively speaking out. Small-business owners feel unfairly targeted, while Prime Minister Trudeau sees the changes as a pathway to fairness. Therefore, the outcome of these incentives are still unknown. If the changes are put into action, however, it could mean a shift for some Canadian small-businesses to the United States.

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