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.  

For media enquiries or interviews, please contact:

Andy Radia
Media Relations Specialist
647-464-2814

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

Poor Europe! She suffered years of economic stagnation and austerity. Costly government bailouts and a drawn-out banking crisis sapped her confidence. Terrorism and an unprecedented surge of migrants poisoned political debate and encouraged extremists. The final insult came when the British voted to leave her.

By the end of 2016, popular wisdom was that Europe’s politics were so shattered and her people so fed up, that upcoming elections would see right-wing extremists swept to power from France to the Netherlands, Austria and Italy. Even the gentle Scandinavians were eager to elect loons!

Except that didn’t happen. The elections came and went. The Austrians and the Dutch elected moderates by healthy margins. The Trudeau-like French centrist Mr. Macron won the French presidency by a staggering 30%, in a victory so crushing that his opponent Mme. Le Pen announced her intention to change the name of her political party. Far from a wave of Trumps, Europe is governed by sensible moderates (with the exception of Orban in Hungary).

And recently Europe’s economy has gone from strength to strength. All 28 members of the EU saw growth last year, and this will continue through 2017 and 2018.

In the first quarter of 2017, the European Union’s economy grew at a healthy 1.9%, more than double the U.S. quarterly growth of 0.7%. European business confidence is near an all-time high for manufacturers and services. More importantly, business is spending – European investment will grow by 3% this year and 3.5% next year. And best of all: European consumers are a happy bunch with low debt levels and money to burn. Last week, consumer confidence hit the highest level since June 2007. Happy days are here again!

Canadian businesses see the opportunities. Hudson’s Bay will invest $570 million in Europe this year and are targeting sales growth of 20%. The CEO Jerry Storch says profits will grow even faster than sales.

So far in 2017, some of Canada’s fastest growing export markets can be found in Europe. Exports to Germany are up 9%, sales to France are up 14% and the Netherlands are up 10%. And Canada’s investments in Europe are even larger. The total sales by Canadianowned companies operating in Europe exceeds $100 billion. That’s more than triple the value of Canada’s direct exports to the region.

Investors have noticed that Europe has her confidence back, and she’s even got a bit of swagger. When Mr. Trump promoted Brexit to other EU countries, the President of the European Commission Jean-Claude Juncker said “I’m going to promote the independence of Ohio and Texas.” Europe has also started flexing her muscles and is about to embark on a new defence spending spree.

And thanks to far-sighted trade ministers, Ed Fast and Chrystia Freeland, the Comprehensive Economic and Trade Agreement (CETA) will come into force soon. We’ve all been so focused on the NAFTA renegotiation and those fabulous 3 a.m. tweets. Let’s not lose sight of a spectacular opportunity for Canadian business. With 500 million people and GDP of $18.5 trillion, the EU is the world’s largest economy, so a return to stability and growth will have a stimulating effect on the whole global economy. Welcome back Europe!

For more information, please contact :

Hendrik Brakel Senior Director, Economic, Financial & Tax Policy

613.238.4000 (284) | hbrakel@chamber.ca

In this edition ofthis weeks V-Blog Greg discusses why it will not only keep the heritage aspect intact but also put a new spin on the area for our futures. Not only our futures though. It will benefit our grandchildren's future as well. This will be a district unlike any in Ontario. So check out this video and support the Gaslight District.

Canadian business is about to go through an era of unprecedented upheaval. Is it an economic crisis? A climate calamity? A Trump presidency? It’s much worse: a mass-retirement of business owners!

A staggering 75% of small business owners will retire over the next decade, and $1 trillion in business assets will change hands. Are we ready?

The answer is a resounding no. Less than half of small business owners have succession plans and only 9% have a formal written plan. We often hear that owners don’t like talking about retirement. They’ve been leading their business for decades and it’s part of their identity. Many just assume that they will be able to sell the business or pass it along to kids when the time comes. And because it’s years away, the awkward discussion can always be put off to another day.

There are huge implications. For starters, inadequate planning will lead to a big tax hit. Many family businesses have concerns that they are treated unfairly. If an individual sells a business to an unrelated person, it’s considered a capital gain and subject to a significant exemption. However, when an individual sells a business to a family member, the disposal is taxed as a dividend at the top marginal rate. That’s because the Crown sees the cash remaining within the family unit and wants to avoid creating a costly loophole. It’s a tough issue—there is an issue of discrimination against family business. In fact, NDP Deputy Finance Critic Guy Caron has prepared the private member’s bill C-274 to address the “unfair treatment” of family transfers.

But financial planners tell us that Canada’s tax code is actually quite generous. If you set up a family trust, an estate freeze or other tax strategies, it’s possible to minimize your tax bill substantially. The problem is that this must be done years in advance.

The second big challenge is financing the succession. It can take years to find the right buyer with deep pockets to buy-out the retiring owner. Again, a lack of planning can force owners into a fire sale situation, and potential buyers need time to raise funds.

The Canadian Chamber recently passed a resolution asking that government small business financing programs be expanded so that potential buyers can access the funds to buy-out a retiring owner. It’s a great idea.

We sometimes focus exclusively on supporting startups, but it’s just as important to ensure the continued success of existing businesses. Consider the perspective of an entrepreneur: you could create a new idea from scratch, seek out customers who have never heard of you and hope against the odds to turn a profit. Or, you could take over a company that has been in business for decades, with a loyal customer base and a track record of profitability.

The point is that it takes years to plan, finance and implement a successful exit strategy—on top of the training and mentoring to prepare the business itself for transition.

That is why chambers and business associations must do more to encourage members to start early and create robust succession plans. Financial institutions and government agencies also must help fund the next generation of managers and owners. But it’s a big challenge for business and for the Canadian Chamber. If you have views on succession planning and/or on bill C-274, please email or give me a call.

Hendrik Brakel Senior Director,

Economic, Financial & Tax Policy

Canadian Chamber of Commerce