Experts Say Tax Changes Will Hit Business Owners Earning as Little as $50K

With the looming Oct. 2 deadline for commentary on proposed tax changes to private corporations, the business community is renewing its call for the federal government to scrap the proposals in favour of a comprehensive tax policy review.

The Coalition for Small Business Tax Fairness, which represents hundreds of thousands of Canadian business owners through more than 70 participating organizations, has sent a second letter to federal Finance Minister Bill Morneau, taking issue with the government’s claim that its proposals would not affect business owners with incomes under $150,000.

“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,” says 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.”

The letter includes analysis from tax practitioners confirming small business owners at all income levels would not only be affected by the changes but, in many cases, would also incur tax rates far greater than what an employee with a similar level of income would pay. 

For example, tax practitioners say the proposal to restrict small business owners from sharing income with family members would affect those with incomes as low as $50,000. And, as Knowledge Bureau recently reported, the limits on sharing income with a spouse are likely to remove a disproportionately higher number of women from benefiting from their family’s business, given that two-thirds of Canadian incorporated businesses are owned by men.

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

“Canadian business families are scared, confused, and demoralized,” says Allen S. Taylor, chair of the Family Enterprise Xchange. “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.”

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

“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,” says Perrin Beatty, president and CEO of the Canadian Chamber of Commerce. “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.”

Business owners and other concerned Canadians can contact their Members of Parliament and use the hashtag #unfairtaxchanges on social media. The government is also accepting submissions on these proposals until Monday October 2, 2017, via email at fin.consultation.fin@canada.ca.

To learn more about these and other tax proposals, and how to best serve your clients, follow Knowledge Bureau’s commentary in KBR and on LinkedIn, Twitter and Facebook, take an online course, or register for Knowledge Bureau’s November CE Summit — which will cover the new regime of taxation for private corporations, post-October 2.

At the Summit, Larry Frostiak, FCA, CFP, TEP, will present calculations of active and passive integration models and recommendations to minimize tax. In particular, case study examples will be presented to illustrate the concepts and set out the implications for existing corporate structures with a look at the “before,” the “after” and the “now.” Discounted early bird registration ends October 31.
 

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