It is clear why federal Finance Minister Bill Morneau’s proposed changes to corporate tax for private corporations have not led to public outcry and anger.
In his announcement on July 18, Morneau could not have done a better job framing the proposed changes as a means to target “wealthy” individuals who were not paying their fair share. A quote from the Department of Finance website from Morneau implies that the current structure “give[s] unfair tax advantages to certain — often high-income — individuals.”
No individual making $60,000 a year is going to be upset with the idea of some wealthy doctor, dentist or gentleman who resembles the Monopoly Man paying more tax and having “loopholes” closed on them. I am with you, Mr. Morneau — let’s close these loopholes. Forget the Panama Papers and the Isle of Man schemes: Monopoly Man should not be allowed to cheat the Canadian taxpayer anymore.
Morneau even mentioned that the change would affect his own corporate tax strategy, being brave enough to fall on the sword for the public good.
The announcement by Morneau and the framing of it in the media fail to mention that as of December 2015 there were 1,143,630 small businesses (under 100 employees) in Canada. These small businesses employ a total of 8.1 million people.
These 1,143,630 small-business owners range from the owner of the deli where you buy your sandwich at lunch to the owner of the garage who changes your oil to the small grocer where you buy your organic produce.
These small-business owners have corporations. If they have an accountant or even someone who knows the very basics of tax, they benefit from the “loopholes” that Morneau is proposing to repeal.
These are business owners who work 14-hour days who are not only selling their product during business hours, but doing administrative work until the late hours of the night.
These business owners have spouses who often stay at home because their focus on their business does not allow them to be home at 5 p.m. every day to pick up their children or their pets. That is their choice, no question, but it is these individuals who are working the late hours and risking everything that they have, who are using the tax mechanisms Morneau refers to — not just the Monopoly Man.
Morneau, while being affected by these changes, does not need to worry about making payroll. He does not need to worry about knocking on someone’s door who owes his business $5,000 in order to make sure he can make his mortgage payment. He does not need to worry about anything that the deli-store owner or the mechanic needs to worry about on a day-to-day basis.
Morneau without a doubt has earned his wealth, but he has personal stock holdings of $30 million and does not have the same concerns or focus as the typical business owner. We thank you for your sacrifice, though, Mr. Morneau.
Morneau used the words “fairness” and “fair” throughout his speech. Both words, as I understand, are not described anywhere in the Canadian Income Tax Act nor any Canadian law.
If they were to be, my presumption is that the following would also be considered unfair, if not more unfair. Can we have “more unfair” added as a definition to the Income Tax Act, while we are changing it to add “fair”?
• Small-business owners are required to pay both the company’s and the employee’s share of CPP if they want to take a wage themselves and pay into CPP. An employee pays $2,564 in CPP — a small-business owner taking the same wage is required to pay $5,128 in CPP. Both receive the same benefit upon receiving CPP.
• Small-business owners do not qualify for EI. If their business fails, and they lose everything, there is no safety net. Their employee, who lost their job but not the home that had a second mortgage on it, qualifies for EI.
• A couple who each make $75,000 (combined $150,000) pay $26,000 in federal tax. Another couple where one spouse has no income and the other has their own business and makes $150,000 pays $32,000 in federal tax.
The rhetoric around Morneau closing loopholes on the wealthy is just that, rhetoric. Morneau is doing what business owners do — looking at alternative revenue streams.
It is incredibly important that all small-business owners and their employees are provided the above facts. I encourage Morneau to take more time than the allowed 21Ú2 months, consulting with and sincerely listening to the public, small-business owners and even the Monopoly Man before making such drastic changes to the Income Tax Act.
Derek Lamb is a chartered professional accountant on Vancouver Island.