Proposed tax changes bad for business

Posted on September 5, 2017

The tax changes proposed by the federal Liberals are a slap in the face to small business owners.

Federal Finance Minister Bill Morneau’s office is preparing to launch the most radical tax overhaul in 50 years. It’s already causing a lot of anxiety among Canadians.

In fact, dozens of organizations from across the country have banded together to form the Coalition for Small Business Tax Fairness — a unified voice to oppose the proposals.

Morneau plans to add a new tax on investment income in a corporation, along with tough new rules for compensation within a family business. The changes come at a time when businesses are already being bombarded by unsustainable increases to minimum wages, rising electrical power costs in North America, cap and trade or carbon taxes, increases to CPP and EI premiums, and the serious trepidation attached to the NAFTA renegotiations.

The Trudeau government is justifying the tax changes by saying they’re about making the rich pay their fair share of taxes. However, these changes go way beyond that – injuring the middle class. The new rules would impact all business owners across the spectrum.

These changes are a business killer. Here’s why:

Starting after 2017, capital gains realized by a family member would no longer be sheltered with the lifetime capital gains exemption to the extent those gains accrued while the individual was a minor. Further, any capital gains accrued while the shares are held in a family trust, or gains subject to the tax on split income would not be eligible for shelter using the lifetime capital gains exemption.

The proposal would restrict business owners from spreading income to family members in lower tax brackets, limit the use of private corporations to make passive investments, and limit the ability for a corporation to convert regular income into capital gains.

While it’s complicated, overall the proposed changes will have a major impact on family succession planning, exit strategies and the flow of passive income. All bad news for small business owners.

Most small business owners take on a ton of risk, go into debt or leverage their house, usually don’t pay themselves much when first starting out, and work extremely long hours in the hopes of making a go of the business. They hire people, pay rent or buy property, pay for advertising and salespeople, invest in inventory, pay tax as they go and operate under an ever-increasing set of government rules and guidelines.

So much for the reward of starting and running a small business. We should be encouraging entrepreneurs, not discouraging them.

If anything, business owners need a break.

Get angry and get in touch with your local MP to make it known that these changes are unacceptable to business owners in Canada. As Canadians, we don’t need – or want – additional or higher taxes.

What can you do?

Get in the know – You can view the announcement made by Canada’s Department of Finance, or to better understand the impact of the proposed changes on business, read this recent article in the Globe and Mail.

Take action – If you feel strongly enough about the proposed changes we would encourage you to write your local MP so he is aware of your concerns. You can also submit a response directly to the Finance Minister.

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