By Medicine Hat News on September 6, 2017.
On July 18, Finance Canada launched a consultation on how “tax-planning strategies involving corporations are being used to gain unfair tax advantages.” The document contains proposed policies to close these “loopholes.” However, this is more than just a change to close loopholes, it is deemed to be the most radical tax overhaul there has been in 50 years. As a result, significant concerns are arising amongst businesses across Canada.
The finance minister says it’s all about “fairness” and his consultation document compares the tax treatment of a business owner with that of an employee to point out corporations have “unfair” advantages. However, there are good public policy reasons for why owners are taxed differently. Painting businesses as “cheaters” is in fact unfair and discriminatory. The changes proposed are potentially punitive and restrictive to small businesses and compound the already cumulative impact that is being felt across our business community by other regulatory changes realized over the last couple of years.
The proposed legislation would not level the playing field, as making the tax treatment the same for both doesn’t factor in risk nor allow for the fact that small businesses drive the growth of our economy. Business owners do not receive the same benefits or protection as employees. They invest their own money to get the business started or pledge personal assets (house, car) as collateral for a loan. Owners have employees who depend on them and if nobody wants that business’s goods or services next month, that owner does not earn a penny and still has to pay out costs for wages, overhead and inventory, amongst other costs. Businesses are also the ones who significantly support our economy, our tax base and in turn, public services, along with supporting generously to our local charities. Businesses also need the ability to invest in their company so they can get through economic downturns or reinvest in capital and other improvements for the growth and sustainability of their business.
The government is also saying this is a crackdown on “high income” individuals, but the rules would apply to all incorporated businesses in Canada — many of which are restaurants, retailers, farmers and consultants to name a few. These are our small businesses, the ones that are the engine of our Canadian economy. Small and medium-sized businesses (SMEs) make up 85-90 per cent of all businesses in Canada with an overwhelming 96.4 per cent of SMEs as a percentage locally. So what exactly are the changes that will impact these SMEs?
The government is focusing on three key tax practices that they feel are being used to gain unfair tax advantages:
1. Income Sprinkling – changes are aimed to eliminate business owners from transferring income to one or multiple members of the family who are taxed at a lower rate or who aren’t taxable at all.
2. Passive Investment Portfolio – changes are aimed to prevent individuals from gaining tax benefits by investing income within a corporation.
3. Capital Gains – changes are aimed to curb private corporations converting income to capital gains and paying a lower tax rate compared to the higher tax that they would pay it if was income.
As with any new tax legislation, the devil is in the details, but the tone of these proposed changes is of great concern. As a direct response to the concern, the Medicine Hat & District Chamber of Commerce, in partnership with the chamber network across Canada, has launched a campaign to use its collective voice and gather feedback from businesses regarding the Federal Government’s proposed taxation changes. This feedback will be critical in assisting Chambers inform our federal government of the impacts felt across all regions in our country.
As result of the feedback, coupled with our strength as the largest, most unified and influential business network in the country, we hope our government will listen, consult and collaborate with us. This will provide further clarification, simplification and most of all, truly fair implementation so that any new measures impact only those situations that they are intended to target.
Businesses are encouraged to contact their local MP to express their concerns and to contact us at firstname.lastname@example.org for more information and to send us your feedback. We also encourage you to register for an upcoming APEX Alberta session on Sept. 11 to understand the upcoming tax changes: http://www.eventbrite.ca/e/small-business-owners-understand-upcoming-tax-changes-tickets-37246922548.
For more information, visit http://www.abchamber.ca/ or http://www.chamber.ca/media/blog/170825-sme-taxation/ and read the most recent 5 Minutes for Business: Hammering Business – Finance Canada’s New Crackdown at http://www.chamber.ca/download.aspx?t=0&pid=c468454a-4d87-e711-a31e-005056a00b05
Lisa Kowalchuk is the executive director of the Medicine Hat & District Chamber of Commerce. For more information on this column or the Chamber, contact 403-527-5214.
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