The Department of Finance Canada is considering major changes to how corporations are taxed. The proposed changes could have a significant impact with many unintended consequences for Canadian businesses: potentially raising taxes, increasing the administrative burden on SMEs and heightening the impact on family-run businesses. While we support reasonable attempts to curtail tax evasion or loopholes, the proposed changes tar all businesses with the “tax cheat” brush without reasonable justification or mitigation incentives for legitimate small and medium businesses.
We have heard concerns from our business community about key changes that will affect their business:
1. Inadequate recognition of family contribution:
• Finance Canada is misguided in their proposal to limit income sprinkling to family members legitimately working in the business: many small businesses are hands-on family enterprises with spouses and children putting in well over 40 hours a week and in most cases capitalized with their combined assets. There are already rules in place to prevent unreasonable payments to family members who are not earning them.
2. Compromising the value of passing on the business to their children
• The proposal to halve the capital gains exemption negatively distorts the market for private business owners seeking to sell their businesses by restricting and reducing family exemptions upon the sale of the business
3. Reducing investments in the company
• Profitable private corporations of all sizes stand to be negatively affected by new taxes on their investment portfolios
The Brampton Board of Trade opposes these changes for the following reasons:
- Fairness: business owners do not get sick days, maternity leaves, or days off. Adequate provisions in the tax code allow money to be put in reserve for these eventualities. The proposed tax changes unfairly ignore this important business reality.
- Recognition of Risk: we need to compensate business owners for the risks that they and their families take or fewer people will start new businesses. The proposed tax changes discourage business and job-creation.
- Sustainability of Business Operations: business owners often have to dip into their personal savings over the course of running their business to cover off payroll, investments in capital, etc. The proposed tax changes would tax this wealth and jeopardize business growth and sustainability. Expect to see an amplification of business bankruptcies if these contingent funds are taxed-away.
- Timing: the proposed changes will add to the cumulative burden already faced by businesses in Ontario: proposed workplace changes in Bill 148, electricity prices, etc.
The current provisions provide safeguards for business owners, encourage job creation and respect the risks entrepreneurs take in establishing and running their businesses. Business people in Brampton encourage you to vote against the implementation of these proposed measures, leaving the current provisions in place.
The theories behind the proposed measures are that the government wants to eliminate the tax advantages that exist for business owners that are not available to salaried workers. However, it seems like the proposed measures are designed to bring in additional federal revenues, going after honest families who have risked their personal capital in helping to create jobs for fellow Canadians. Taxing wealth does not create jobs.