London News & Search
Dear Canadian businesses: Thanks but we no longer need you.
That may as well be the message coming out of federal Finance Minister Bill Morneau’s office as the government prepares to launch the most radical tax overhaul in 50 years.
His plan to add a new tax on investment income in a corporation, along with tough new rules for compensation within a family business, comes at a time when businesses, particularly in Ontario, are being bombarded by unsustainable increases to minimum wages, the highest electrical power costs in North America, cap and trade or carbon taxes and increases to CPP and EI premiums, to say nothing of the trepidation attached to the NAFTA renegotiations.
And you can add to this cancelled reductions in the small business tax rate, and tightened rules on partnerships.
One has to ask of the finance minister, a former businessperson, what are you thinking?
The current tax system for business was designed to motivate people to start businesses, and by anyone’s measure that plan has worked tremendously well. Today, small business is the backbone of our economy and generates by far the greatest percentage of new and sustainable jobs.
While the finance minister claims to be targeting “passive” income of “high-income individuals,” because they have some sort of unfair advantage, the rules would in fact punish all incorporated businesses in Canada for saving and investing.
Exactly who is he talking about? Those corporations include your neighbours and mine. They own restaurants or retail shops, have a small consulting practice, operate a farm or run a medical practice.
The minister seems to have conveniently forgotten why owners of these corporations are taxed differently. They don’t enjoy the usual array of benefits that an employee with a company gets. Things like a pension or health benefits or vacation pay.
And they took all of the risk to get that business started, often with their own money or putting their personal assets on the line to get a loan.
Furthermore, that same business owner’s employees depend on the company to provide them with sustainable, paid employment even when sales or demand is slumping.
In fact, there are many businesses (corporations) that don’t earn a dime in some months, so the need to invest income back into the company during those slower times is critical.
“That’s why in every advanced economy in the world, businesses can accumulate and invest after-tax retained earnings so they have money to get them through an economic downturn or to make big capital investments,” said Hendrik Brakel, the senior director for economic, financial and tax policy at the Canadian Chamber of Commerce.
One owner said, “I keep most of the earnings in the company because we’re trying to grow and because in construction, we go through tough cycles when business dries up.”
Finance Canada expects to raise a paltry $250 million, or less than one per cent of the total budget, by going after so-called “unreasonable” salaries paid to family members.
Then, factor in the realty that the CRA will have to tax more than $1 billion in salaries and audit virtually hundreds of thousands of businesses to collect it, according to Brakel. The tax courts will be spilling over with litigation after litigation and for what?
Canadian corporations, a.k.a. small businesses, have every right to be offended as they are being painted as cheats. This proposed tax overhaul is designed to hit the maximum number of businesses in the most complex way imaginable, and all for $250 million.
Nobody likes people who evade taxes, as it places an unfair burden on those of us who lawfully pay taxes every year, but these changes will punish legitimate businesses.
How much more can the average small business corporation withstand? Why on earth is the government even testing the possibility of these tax changes? There is too much at stake and the consequences too high a price to pay: fewer new hires, layoffs, stalled incomes, fewer jobs for youth, and higher consumer prices, food prices and medical costs to name a few.
If the government wants to punish real corporate tax cheats, by all means do so, but there is no credible reason why hundreds of thousands of legitimate businesses should be targeted as collateral damage.
With this legislation already drafted and the so-called consultations lasting just 75 days (in the heat of the summer), our only recourse is to email or call your local MP to tell him or her the government is proposing to hammer business with tax changes that will hurt families and punish entrepreneurs.
The train already may have left the station but it is never too late to slam on the brakes on this runaway.
Gerry Macartney is chief executive and general manager of the London Chamber of Commerce.
London News & Search