The backbone of Canada’s economy will be hurt by the federal government’s hurried and poorly thought-out attempt to reform our tax system. Ottawa must correct its course and avoid collateral damage to small business.
On July 18, the federal Department of Finance released a document entitled Tax Planning Using Private Corporations that outlines substantial revisions to taxation, arguing that reforms are needed to reduce income inequality between employees and the self-employed. The government points to the increase in the number of incorporated professionals as evidence that many Canadians are forming private corporations to reduce their tax burden.
The announcement has already sparked tremendous pushback from small businesses, incorporated professionals and farmers. We’re adding our voice because we think the government’s approach will do more harm than good. The government’s deadline for comment was Oct. 2, but the voices of opposition are not going to stop after that arbitrary date.
The most contentious proposal is an end to the common practice the government has labelled “income sprinkling.” This is the practice of spreading income among members of a family that owns a business so that all of the business income isn’t taxed on one family member.
There is concern about another proposal that would affect small businesses that save money in the company to cover lean times. The changes would also create punitive taxation for people who have built a business and want to pass it on to their children.
Nobody supports tax evasion or loopholes, but the proposed changes would apply to all small business. Everyone would be swept up by the same broom.
The federal government has made no distinction between the high flyers whose wings it wants to clip and people who incorporate because it’s standard practice when you run a business.
It will seriously disrupt thousands of entrepreneurs who take the risk to open a business and then need to pay for their own vacation time, parental leave, illness and retirement and to sock something away for lean times.
These businesses contribute to the gross domestic product. They are job-creating machines that pay the property taxes and provide the goods and services that make our towns and cities vibrant and interesting.
Finance Minister Bill Morneau says he knows first-hand that business owners take on an inordinate amount of risk and make many sacrifices to persevere against setbacks and prosper. Why, then, does it make sense to handicap a segment of the economy that has directly helped Canada’s economy grow faster than that of any other G7 nation?
A more favourable way to characterize current tax practices is that they help business owners cope with the unpredictability of the economy, lack of a paycheque, no health benefits, no pension and no Employment Insurance coverage.
Tax reforms should be more than political theatre. The federal government is doing a disservice to real middle-class Canadians who own a business by characterizing them in ways that have inflamed emotions.
If the tax practices of wealthy Canadians are a serious threat to the Canadian economy, then the federal government needs to figure out a way to deal with the issue that doesn’t create a financial risk for every small business in Canada.
Catherine Holt is CEO of the Greater Victoria Chamber of Commerce; Kerri Milton is executive director of the Downtown Victoria Business Association; Lisa Helps is mayor of Victoria.