Here in the cooler days of autumn, when thoughts should be drifting to turkey, a new season for the Canucks and shorter days, recent musings about the tax changes envisaged by federal Finance Minister Bill Morneau are causing significant anxiety for those who take the risk of being their own boss. There is worry, frustration and, in some cases, anger.
In Western Canada, we feel tax pain more than most. The cumulative tax burden vis-a-vis federal benefits is one of our biggest challenges and these new changes proposed by the federal government could make it even harder to bear.
The lower small-business tax rate on the first $500,000 in corporate income remains vital to the success of many small firms. Now, government officials are charging ahead to limit access to it or eliminate it.
When running for office, the Trudeau Liberals pledged to cut the rate from 10.5 per cent to 9 per cent. That hasn’t happened. These proposed changes will make things more difficult, especially for owners of smaller firms.
The idea is to make sure the wealthiest pay their fair share of taxes. Fair ball, but let’s not throw smaller businesses under the bus in the process. Unfortunately, the government appears to forget that the vast majority of independent business owners aren’t members of the so-called wealth one per cent; they’re the middle class. Two-thirds of small-business owners earn less than $73,000, and half of them earn under $33,000.
The feds’ plan is to eliminate or restrict how some business owners save on taxes, including:
Sharing income with family members that contribute to the success of the business
Saving passive investment income in a corporation that is taxed later when withdrawn
Converting a corporation’s income into capital gains which are taxed when realized
These measures are currently legal and are often used by independent businesses to re-invest, ensure stability, offset federal programs that business owners haven't ability to access, or save for the owner’s retirement.
Most worrisome is the proposal to make it difficult for small-business owners to share income with family members working for them and the success of their firms. The support of family members in formal roles is often key to the success of a firm, and any limitations could have significant, unintended consequences.
On passive income, we know it is much more difficult to borrow money as a small-business owner. A business’s passive income acts as insurance against emergencies and unforeseen costs. Business owners need to be able to rely on their investments — in their own business — to protect them against the risks of owning a business.
Also, since business owners don’t have the kinds of generous pensions available to public servants, or giant salaries creating RRSP room, they need to depend on the value of their business, including any of its investments, for their retirement years.
These proposed changes would come into effect in 2018. A public consultation process has been launched and the Canadian Federation of Independent Business vigorously brought forward the concerns of small-business owners. Did the Trudeau Liberals listen? We will soon know.
Typical self-employed individuals are professionals, university educated and have vast contacts though out a community like West Vancouver. Assume the miss-calculating Liberals continue to bully small business. Seems to be a very risky proposition for their re-election on October 19, 2019. After all, those business owners will have memories longer than two years. After all, the victims are exactly the kind of individuals that will take action to protect themselves, their families and their businesses.
Ciao,
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