Growing coalition confirms tax proposals will affect middle-class business owners
Thursday, September 28, 2017
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.
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Media Relations Specialist
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
Letter Sent to the Cambridge Chamber of Commerce Membership
The federal government's recent small business tax proposal is punitive and will have damaging effects on business communities in Ontario and across the country.Over the summer, the federal Finance Department has made it clear that it intends to make the most sweeping changes to business taxes in 50 years.These proposed changes will negatively impact tens of thousands of businesses by raising taxes, reducing incentive for private investment, increasing administrative burdens, and making it even more difficult for a business to be transferred from one generation to the next.
Family businesses and family farms are being touted as tax cheats by the Federal Government. Although, they have walked that back - the fact is they have described legitimate and legal use of the tax laws are wrong and most commonly referred to as a loophole. This is not only ignorance of what it takes to build a successful business, but makes Canada the only country in the world to impose such punitive tax measures on small business. It is clear, this government has no respect for business, especially the locally owned family business.
The immediate reaction from our members and businesses across Canada was negative. We are particularly worried about the effects of the proposed tax changes for small and medium sized businesses - who are essential to our thriving local business community. We encourage local businesses to contact our MP to provide feedback on the possible changes.
Bryan May, M.P., Cambridge & North Dumfries
534 Hespeler Road (Main Office)
Cambridge, Ontario N1R 6J7
Telephone: 519-624-7440 Fax: 519-624-3517
As an organization, we support reasonable attempts to reduce tax evasion or loopholes. However, these changes are insulting to businesses that have worked within the rules in good faith to build their businesses, to save for retirement, and sometimes just to keep their doors open.
Small Business is Too Big To Ignore and we need to demonstrate this with one voice.
If you're not a small business owner but work for one, ask Mr. May and Mr. Tabbara to protect YOUR job by supporting small business entrepreneurs in Cambridge.
Are you a business owner? Your MP needs to hear from you
Tuesday, September 12, 2017
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.
5 Minutes for Business: Hammering Business – Finance Canada’s New Crackdown
Wednesday, August 23, 2017
These are not tweaks! The government has just proposed the most radical tax overhaul in 50 years. We’re particularly worried about the impact on business from (1) a new tax on investment income in a corporation and (2) tough new rules for compensation in family businesses. Why is the government doing this?
The 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. But, the comparison makes no sense—there are good public policy reasons for why owners are taxed differently.
Because unlike an employee, a business owner doesn’t get a pension or health benefits or vacation pay. She invested her own money to get the business started. Or, she pledged her personal assets (house, car) as collateral for a loan. She has employees who depend on her. And, if nobody wants her goods or services next month, she does not earn a penny.
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. One owner told us, “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.”
The government wants to tax “passive” (invested) income. It says it’s a crackdown on “high income individuals,” but the rules would apply to all incorporated businesses in Canada, most of whom are restaurants, retailers, farmers and consultants—to punish them for saving and investing. It gets worse!
Finance Canada also expects to raise $250 million by cracking down on “unreasonable” salaries paid to family members, which it says diverts corporate income into lower tax brackets. But, to pull in $250 million, CRA will have to tax over $1 billion in salaries and audit hundreds of thousands of businesses. Imagine the litigation! You’re paying your spouse $80K, but the CRA believes he or she should only be earning $50K. Do you go to Tax Court? An owner told us, “if my son had not worked 12 hours a day, my business might not have succeeded. Painting us all as cheaters is unfair and discriminatory.”
Incredibly, Finance Canada has managed to design a set of tax measures that would hit the maximum number of businesses in the most complicated way for a small amount of revenue. The expected $250 million is less than 1% of the federal deficit.
Nobody supports tax evasion or loopholes. But these changes will punish legitimate businesses. And, they come after the government cancelled reductions in the small business tax rate, tightened rules on partnerships and started taxing work in progress. That’s on top of new carbon taxes, raised CPP premiums and an increase in the EI rate. Our members are asking why this government keeps raising taxes on business.
We’re not sure what to tell them, but there is an important test ahead. Finance Canada has launched a consultation even though it is clearly determined to move forward—the legislation is already drafted. So email or call your local MP to tell him/her the government is proposing to hammer business with tax changes that will hurt families and punish
entrepreneurs. Only MPs have the power to slam the brakes on Finance Canada’s runaway train.
For more information, please contact :
Senior Director, Economic, Financial & Tax Policy
613.238.4000 (284) | firstname.lastname@example.org
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'.
Federal Government considering major changes to corporate taxes
Tuesday, August 8, 2017
Finance Canada Is Considering Major Changes to How Corporations Are Taxed
The Department of Finance Canada is considering major changes to how corporations are taxed. The proposed rules could have a significant impact on many Canadian businesses: potentially raising taxes, increasing the administrative burden on SMEs and heightening the impact on family-run businesses.
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.” There are four key changes that will affect business:
Sprinkling income using private corporations: The government wants to tighten rules to prevent a business owner from unfairly transferring income to family members who are subject to lower personal tax rates. In certain circumstances, owners would have to demonstrate that wages and dividend payments are “reasonable.”
Multiplying the Capital Gains Exemption: When an individual sells a small business, the first $850,000 of capital gain is exempt from taxes. The government wants to prevent tax planning structures that enable multiple family members to use their exemptions.
Reducing the tax deferral advantage on portfolio investment inside a corporation: Currently, an owner can accumulate portfolio earnings inside a corporation and pay corporate income tax rates (which are generally much lower than personal rates). The owner defers paying personal income or dividend taxes until the money is taken out of the business. The government is considering alternatives that would reduce this tax advantage.
Converting a private corporation’s regular income into capital gains: Income is normally paid out of a private corporation in the form of salary or dividends that are taxed at the owner’s personal income tax rate. In contrast, when a business is sold, it is taxed as a capital gain, where only one-half of capital gains are included in income, resulting in a significantly lower tax rate on income that is converted from dividends to capital gains. The government wants to tighten the rules to prevent certain tax planning structures, but it is open to more favourable treatment for genuine family business transfers.
The Canadian Chamber of Commerce and its Taxation Committee are currently studying how the proposed changes will affect members in different industries, in family businesses and those with different ownership structures. They will be submitting recommendations to Finance Canada.
Should you wish to participate or provide input, please email the Cambridge Chamber at email@example.com. In particular, we are looking for detailed examples and cases of how a specific small business will be affected by the changes. We feel concrete examples will be most effective in making our case for easing the changes. We would ask that you send them to us by August 18.
Click here to view the consultation documents released by Finance Canada.
5 Minutes for Business: Business Costs and Canadian Competitiveness—We’re Not Crying Wolf
Tuesday, August 8, 2017
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.
5 Minutes for Business: The Explosive Debate around Minimum Wage
Thursday, July 20, 2017
Big increases to minimum wage are becoming fashionable in Canada: first Alberta (from $12.20 currently to $15 in October 2018), then B.C. (from $10.35 to $11.35 in September 2017) and now Ontario (from $11.40 to $15.00 in January 2019, a 30% hike in 18 months). Are workers better off or does it mean fewer jobs?
The debate has been ferocious because economists don’t agree, but let’s look at the fundamentals. The government accepts that carbon taxes are effective at reducing emissions because if you make something more expensive, people will use less of it. We agree, but the same logic must apply to wages. And, actually, a business owner faced with the rising cost of an input (labour) has three options:
Absorb the added cost out of her profit margin
Reduce use of labour by substituting in morecapital or simply making do with less work
Let’s take these in order. Some businesses are so spectacularly profitable that owners can just absorb rising labour costs. But Apple and Microsoft don’t use minimum wage labour. If we look at profit margin by industry, the biggest users of minimum wage labour are in retail and food service, with razor thin (below 3%) margins. There is very little room to absorb these costs, and if a business is not profitable, there is not much point in keeping it going.
What about raising prices? The critical ingredient in business success is getting the right price point for your market. One restauranteur told us that the lunch menu in her neighborhood has to be $5-$8, any higher means flirting with disaster. In retail, the competition is with online giants, like Amazon. Often, there is no room to raise prices without driving away customers.
The third option to cope with rising wages is making do with less staff. This is controversial because many studies show that minimum wage can be increased without a corresponding rise in unemployment.
That’s why the recent Seattle study produced such a bombshell. Washington state collects detailed data on hours worked and it showed how part time workers with irregular schedules are cut back. Seattle’s minimum wage hike reduced the total hours worked by the low-wage workforce by about 9% while raising their wages by only about 3%. The net loss to workers was an average of $125 a month. This is a big, immediate hit to the most vulnerable workers.
There is some evidence that modest increases in minimum wage can be done without disrupting labour markets, but governments have to be cautious about hurting competiveness. Previously, I had said there are three options to deal with rising costs, but there is actually a fourth and a fifth option: shut down or move to a different jurisdiction. Let’s provide input to the Government of Ontario to prevent this from happening. The Ontario Chamber of Commerce has
done some great work on this issue and has a report that can be viewed here.
The Liberal government wants to introduce a minimum wage increase to $15 dollars an hour by 2019. This isn't a move that best helps the people of Ontario nor is it the right move. Funny enough... These newly reformed labour laws won't fully come into effect until AFTER the provincial election is over with. Is it about helping the people of this province? Or is it a move for someone to keep their Premier job?