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Growing coalition confirms tax proposals will affect middle-class business owners

Leading tax practitioners say that business owners with income as low as $50K will be affected

 

Ottawa, September 27, 2017 – The Coalition for Small Business Tax Fairness, a unified voice of more than 70 organizations representing hundreds of thousands of business owners across the country, has written a new letter to Finance Minister Bill Morneau with professional analysis confirming that Ottawa’s tax proposals will affect middle-class business owners, resulting in higher tax rates than other Canadians with similar income levels.  

 

“We are alarmed by the huge gap between the government’s statements about the impact of their proposals and the detailed analysis by Canada’s tax professionals,” said Dan Kelly, President of the Canadian Federation of Independent Business (CFIB) and member of the Coalition. “Tax practitioners are united in the view that these changes have the potential to affect all small business taxpayers, no matter their income.”

 

"It is the farmers, mom and pop shops, and entrepreneurs, who invested everything into their businesses, that will be most affected by these changes, instead of targeting the real problem. The government needs to go back to the drawing board, hold a real consultation and listen to what tax professionals, provincial governments and the business owners who fuel the growth of our communities are saying," added Perrin Beatty, President and CEO of the Canadian Chamber of Commerce.

 

The government has claimed that these proposals would not affect business owners with incomes under $150,000. Tax practitioners disagree.

 

One of the new rules introduced by the government would restrict small business owners from sharing income with family members. Tax practitioners say that this can affect business owners with incomes as modest as $50,000. Also, as two-thirds of Canadian incorporated businesses are majority owned by men, the restrictions on sharing income with a spouse are likely to remove a disproportionately higher number of women from benefiting from their family’s business.

 

The government is also proposing changes that would discourage small business owners from holding certain types of investments in the incorporated company. According to tax practitioners, business owners retain business earnings in the corporation to safeguard against economic downturns, secure bank financing and invest in other start-up companies.

 

Tax practitioners have confirmed that the proposed tax changes would result in higher combined corporate and personal taxes for business owners across the board and in many cases, small business owners would incur tax rates far greater than what an employee with a similar level of income would pay. 

 

The Coalition, which has doubled in size since August 31, is asking the federal government to review carefully the analyses of tax professionals across the country, take these proposals off of the table, and launch meaningful consultations with the business community to address any shortcomings in tax policy.

 

The Coalition for Small Business Tax Fairness is encouraging business owners and other concerned Canadians to contact their Members of Parliament and use the hashtags #unfairtaxchanges #taxesinéquitables on social media. For the full list of Coalition members, please visit smallbiztaxfairness.ca.  

 

For media enquiries or interviews, please contact:

Andy Radia
Media Relations Specialist
647-464-2814

 

What some are saying:

 

“The agriculture equipment manufacturing sector represents 12,000 Canadians and their families predominantly in rural areas; as entrepreneurs who have put their lives on the line to invest in and grow their family business, the sector consistently exports more than $1.8 billion of farm equipment to over 150 countries. The scope and complexity of the proposed tax changes puts a lot of this at stake, and we must fight to ensure that fairness prevails for our members.” — Leah Olson, President, Agricultural Manufacturers of Canada

 

“Franchisees are the backbone of the communities they serve, by employing people of all backgrounds, supporting local initiatives, and helping grow the economy. As business owners, they assume significant risk, but have been able to achieve success through hard work and support from family members. Simply stated, CFA believes the changes being proposed by the Minister will hurt Canadian franchisees.” — Ryan J. Eickmeier, Vice President, Government Relations & Public Policy, Canadian Franchise Association

 

“The residential construction and renovation industry has always largely consisted of family-run businesses that help build the communities they operate and live in, many over several generations. These are hard-working Canadians trying to earn a middle-class living, hire local workers, and create a future for their families. The government’s proposed tax changes threaten the very existence of these businesses, posing a threat to small local companies in every community and the jobs they create.” —Kevin Lee, CEO, Canadian Home Builders’ Association

 

“We look forward to working with the Minister of Finance to ensure that any changes help secure the future of agriculture and not hinder it.” — Mark Wales, Chair of the Canadian Horticultural Council’s Business Risk Management Committee

 

“We are fully supportive of the government’s pledge to advance evidence-based policy-making. Our members are concerned that the government’s proposed changes to small business taxes are not sufficiently informed by the level of research, analysis and consultation required to ensure a full appreciation of the impacts this will have on Canadians - not just entrepreneurs and small business owners but also on the overall health of the Canadian economy and competitiveness in the short and long term.” — Leigh Harris, Vice Chair (Interim) National Board of Directors, CMC-Canada

 

“Canadian business families are scared, confused, and demoralized. Years of planning for business succession will potentially go up in smoke! And we’re being called tax cheats along the way. Canada can do better, we must do better—our economy depends on it.”— Allen S. Taylor, Chair, Family Enterprise Xchange

 

“These egregious proposed tax changes would negatively impact the family farm in ways that are both profound and complex. The federal government needs to reverse course on their ill-advised tax hike attack on our middle-class family farms. — Levi Wood, President of the Western Canadian Wheat Growers Association, grain farmer

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Are you a business owner? Your MP needs to hear from you

If your business is incorporated, you could be facing a larger tax bill and big compliance costs from the government’s new proposals to change the way corporations are taxed. Here are three things you need to know about the tax changes proposed by the federal government:

 

  • Do you employ family members? The government wants to scrutinize their compensation to apply a much higher tax rate on income they consider “unreasonable.”

  • Do you invest the profits from your business? The federal government is proposing to tax that income at an effective rate of 70%. 

  • Do you want to pass your business on to your children? Tough new rules make it difficult for younger kids to get the capital gains exemption. They could be double-taxed.

 

Small and medium-sized businesses (SMEs) are the engine of the Canadian economy – estimates range from 85 to 90% of all businesses in Canada are SMEs.

 

The chamber network across Canada is using its collective voice on this issue; your voice as a business person needs to be heard as part of this initiative. Send a message to your MP today. Government needs to know that this tax reform will harm businesses of all sizes.

 

Don’t know where to send the message to your Member of Parliament? Look up their address using your postal code.

 

Thirty-five business groups, including the Canadian Chamber—on behalf of the hundreds of thousands of members they represent—have presented a letter to Finance Minister Bill Morneau asking the government to take these proposals off the table and instead meet with the business community to address any shortcomings in tax policy affecting private corporations.

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Bill 148 and now Tax Changes

First you have the Provincial Government with Bill 148 and then you add what our Federal Government wants to do regarding taxes and in reality it just adds up to a nightmare for small businesses. Greg explains in this weeks' 'The City'.

 

 

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5 Minutes for Business: Business Costs and Canadian Competitiveness—We’re Not Crying Wolf

 

Every so often, one of our government contacts will ask a question that goes like this, “Why is the Canadian Chamber complaining about (pick one): the new carbon tax/the CPP premium increase/the deferral of small business tax reductions/the proposal to tax passive income/this new regulation/that increase in fees? It’s not a huge cost to business. Why are you making a big deal?”

 

We politely explain that all of these tax increases come out of the same pocket. If you take one of these tax hikes individually, it may be small, but when you add them all up, we’re accumulating a rather large pile of straws on the camel’s back. And that’s the problem. Canada is an expensive place to do business.

 

Last week, the President and CEO of the Canadian Chamber of Commerce and his provincial and territorial colleagues wrote to the Prime Minister to point this out. The letter was also sent to all of the provincial premiers because, right across the country, we are worried that “the cost of doing business in Canada is rising. This concern is not limited to the costs generated by the fight against climate change, but reflects the serious cumulative impact of the growing burden posed by fees, taxes and regulations the private sector is being asked to bear. Our members are deeply worried about their ability to both grow their businesses within Canada or compete for investment and customers from abroad. This concern becomes even more substantial when we see the determination of the U.S. administration to dramatically cut both regulation and business taxes in that country.”

 

As luck would have it, our letter was published on the same day that Petronas cancelled a $36-billion LNG investment in British Columbia. It’s impossible to pin the blame for the decision on any one factor (Petronas vaguely cited “market conditions”), but the uncertainty around project approval, along with regulatory, tax and cost burdens all contributed. The effect is a loss of jobs for Canadian families, truly a missed opportunity for Canada.

 

It’s not just Petronas, Canada has seen a mass exodus of investment, a staggering $60 billion has left over the past two years (in 2017, Shell divested $7.5B, Marathon sold $2.5B and ConocoPhillips $17.7B. Most has gone to other jurisdictions). And we’ve seen some of the players shedding Canadian energy assets while investing more in the U.S. It’s true that U.S. shale enjoys a modest cost advantage over oilsands production, but we worry that Canada’s high costs and dithering over pipelines is having a big impact. As the Globe and Mail pointed out last week, “It’s beginning to feel it is becoming impossible for any new interprovincial pipelines to ever get built […] because of obstructionist games played by premiers and mayors. […] Environmental benefit: Nil. Economic cost: High.”

 

 And it’s not just oil and gas. Last week, we sat down with a major multinational agri-food producer who told us that, for his company, regulations are a bigger cost than taxes. The company was struggling with Canada’s new food labelling rules and asked if the current government is “sensitive” to the cost burden of regulation. I said the word “sensitive” is too strong. “Blissfully unaware” might be a better descriptor. The government wants to attract more foreign investment, but in a tough globalized environment. What really attracts investors is the rate of return. That’s why costs, rules and regulations are so important.

 

And they have real world impacts on Canadian families and their prosperity. Last week, we wrote to the Prime Minister, “As we increase business costs to address climate change, we urgently need to find ways to lower costs elsewhere. […] to strengthen Canada’s economic competitiveness.” Global capital can go anywhere. The wolf is at the door.

 

For more information, please contact:

Hendrik Brakel

Senior Director, Economic, Financial & Tax Policy

 613.238.4000 (284) | hbrakel@chamber.ca

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