Canada tweaks business tax reform amid backlash

OTTAWA (Reuters) - Canada unveiled simplified measures to close loopholes for those who use private corporations to reduce taxes, backing down on one part of a reform that had sparked a backlash against the finance minister and spurred questions about his own business dealings.

The move could ease pressure on Finance Minister Bill Morneau, the multi-millionaire former chief executive of human resources management firm Morneau Shepell Inc, who faced questions about a potential conflict of interest after the tax reforms were announced in July.

Responding to vocal opposition to measures that targeted “income sprinkling” - business owners who distribute income among family members to reduce their taxes - the finance department said the reform would exempt family members who contributed to the business.

The government had in July proposed changes to three specific tax practices in a bid to stop private corporations from using Canada’s corporate tax rate, which is lower than the personal tax rate, to avoid paying income taxes.

The modified income sprinkling measures, which will be folded into the Liberal government’s spring budget legislation, will reduce the number of businesses affected to some 45,000 corporations, from 50,000 previously.

“More significantly, the proposals provide greater certainty that the revised rules will not apply to individuals who make a meaningful contribution to a business,” the finance department said in statement explaining the changes.

Reporting by Andrea Hopkins; Editing by Susan Thomas