OTTAWA — We’ve had more than a month of attacks and government deflection on the new federally proposed changes to business tax. In the words of Finance Minster Bill Moreau, he wants to start “going after” businesses.
Here’s what the government is targeting.
Dividends. Ottawa plans to stop corporations (25 per cent of Ontario farms are incorporated) from paying dividends to family members over the age of 18 to avoid a higher tax bracket. Critics argue that most new businesses include everyone in the family and the rule changes don’t account for the owner who carries the burden of risk.
Passive investments. Ottawa wants to increase the tax on “passive” business investments in real estate and stocks. Critics argue that businesses often use these investments as buffers against emergencies, unforeseen costs and for retirement income since owners don’t have retirement plans.
Succession planning. Edmonton tax lawyer Greg Gartner says the proposed new rules mean that a farmer who wants to sell a $4-million farm to a stranger would pay $500,000 in taxes. But if the same farmer were to sell to one of his children, he would pay $1.64 million in taxes. Here’s what some pundits and farm leaders are saying.
“The proposed tax changes are important and groundbreaking, but after careful study, I must conclude that they are almost entirely bad for the country. They constitute a violent assault on small business, the self-employed, private companies, and tax-paying, high-income people such as lawyers, as well as on financial continuity in families. In a word, it is an assault on a whole range of traditional values, though it is, like all tax increases, dressed up in the threadbare raiment of fairness and elimination of ‘loopholes,’ which have come to mean any abatement of taxes on all categories of income below about 90 per cent.”
— Conrad Black, National Post
“So why are we going through all this? Is it really to ensure our tax system is fair? If that were true — if these provisions do provide a retirement savings benefit to small business owners compared with ordinary workers — should we not also address unfair, tax-supported public sector pensions? After all, civil servants can often retire as early as 55, claim a bridge benefit to avoid the CPP penalty the rest of us would experience and then split their pension income with their spouse. Taxpayers are picking up the tab for all that.”
— Dan Kelly, president of the Canadian Federation of Independent Business that advocates for its 109,000 small- and medium-business owners across Canada
“Incorporated farm businesses in Ontario are facing devastating tax implications if the federal government approves proposed changes to the private corporation tax system. About
25 % of farm businesses in Ontario and Canada are incorporated, and could be hit with a hike in accounting and succession planning fees, and severe limitations on farm transfer options to the next generation.”
— Ontario Federation of Agriculture director Mark Wales
“These tax proposals represent transformative changes that would bring about major uncertainty for farms that are incorporated, especially for multi-generational family farms. The government must recognize that small business owners face unique risks and costs — especially in agriculture where farmers must plan for a wide range of factors that can affect their operations from year to year.”
— Canadian Federation of Agriculture President Ron Bonnett
“One of the key concerns among our farmers is how the proposed changes will impact farm transfers to the next generation. The changes would add complexity and uncertainty to the transfer process, particularly for young farmers, under 24 years of age, who are trying to establish themselves in the farm business.”
— Grain Farmers of Ontario chair Mark Brock
“Finance Minister Bill Morneau recently announced a plan to crack down on “tax planning using private corporations” by closing “loopholes.”
“If adopted, these changes would mean a dramatic tax hike for millions of Canadians and impact countless small businesses. The government’s position is that these practices are unfair because they allow small business owners to pay less tax. Their solution is to make small businesses pay up by raising their taxes to a level comparable to what a salaried wage earner would pay. Why, they argue, should a small business owner earning $200,000 pay less tax than a salaried employee earning $200,000?
“There are many reasons why, which have to do with the vastly different ways in which these incomes are generated and the additional costs and risks borne by small business owners. The government’s failure to consider them is a fundamental mistake.
“For example, salaried employees receive guaranteed pay and health benefits. Salaried employees receive paid vacation, sick days, overtime pay, severance pay if laid off and sometimes a pension. Business owners get none of these things. Business owners only get paid if they make money and they have to pay for other things like health coverage out of their pocket or buy insurance for themselves.
“Viewed in this light, some of the ‘unfair’ practices identified by Morneau should instead be seen as important incentives to encourage more people to set up and grow small businesses. For example, passive investments allow business owners (who have no pension) to save for their retirement, as well as to build a cushion to protect their business should it have a rough year in the future.”
— Aaron Wudrick, federal director of Canadian Taxpayers Federation
“The great national tax revolt will fizzle by Christmas…
“The Liberals are intent on changing the rules that allow small-business owners to defer taxation by using private corporations to make passive investments. The Conservatives have leapt on the issue, suggesting all small businesses will be hit including mom-and-pop firms and farmers.
“But, as will become clear when the government releases its refined proposal later this fall, very few individuals in these categories will be affected.”
— John Ivison, National Post
“What has really caused many of the problems is the awful, condescending rhetoric coming out of Ottawa, labelling small business owners as a group of cheats and greedy tax evaders trying to dodge the system by using loopholes. That was simply insulting.
“The government anticipates that the new regulations will bring in barely $250 million a year. For those thinking that the Liberals are looking for ways to increase revenues to pay for a ballooning deficit, they are wrong. This is really about politics, purely and simply.
“Prime Minister Justin Trudeau’s egalitarian agenda to serve the so-called middle class is motivating the government to implement these changes. The tax regime needs change as some small corporations are using current tax rules to save money unjustifiably.”
— Sylvain Charlebois, Dalhousie University, Nova Scotia