Proposed Tax Reforms Threaten Small Business, Professionals & Other Hard-Working Canadians
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You will be affected by drastic proposed changes on the taxation of private corporations.
Sign this petition in order to stop these changes from being implemented.
On July 18, 2017, the Department of Finance released a policy paper with proposed legislation on the taxation of private corporations. Finance Minister, Bill Morneau, claims the Government’s objective is to reduce taxes on the middle class and raise taxes on the richest 1% of Canadians.
In reality, the proposed changes are much broader and will seriously and negatively impact hard-working Canadians, including those that own family businesses, farmers, independent contractors, self-employed tradesmen and tradeswomen, and incorporated professionals such as lawyers and doctors.
The suggested changes will be irrelevant to the wealthiest 1% of Canadians. Any savings or deferral from splitting income or investing retained earnings from a corporation, which are targeted by the proposed changes, are absolutely meaningless to the wealthiest 1% as a function of their wealth. It is ironic that Morneau, who has reported stock holdings in excess of $30 million, is trying to prevent Canadians from accumulating wealth under the very system that made him millions.
The following is a summary of the two main proposed changes and an explanation as to why they are seriously problematic:
1. Splitting income will no longer be permitted and the proposed changes will specifically target young Canadians who attend post-secondary education and stay-at-home spouses. The current system allows small business owners to pay a dividend to a child over the age of 18 and have it taxed at the child’s rate. Many Canadians rely on this structure to put their children through University. Even worse, paying a dividend to your spouse will not be possible unless you can show that the amount of the dividend is a reasonable return for the labour and or capital that the spouse is contributing to the business. The proposed change, effectively, totally minimizes the important contributions made by a stay-at-home spouse.
2. Morneau outlines that the current tax rules applying to passive investment income earned in private corporations provide an “unfair” deferral advantage when compared to income earned personally. If, for example, an employee earns $100 and pays $50 in tax, they have $50 to invest. If that same $100 is earned in a corporation, because of the lower tax rate, you would have $75 to invest. This allows small business owners and incorporated professionals, such as doctors and lawyers, to save a little bit more for retirement because unlike employees or government workers, they do not have defined benefit pension plans. To be clear, those benefiting from the current structure are not paying less tax because when the money comes out of their corporation, an additional tax applies so that the overall result is the same as the employee. It is just a deferral advantage. The government is planning to subject the income from the passive investments to double tax in order to try to level the playing field with employees.
The underlying premise of both of these proposals is trying to equate employees with small business owners and incorporated professionals. Unfortunately, it completely ignores the fundamental differences between these two groups, including the following:
1. Employees do not risk their capital and mortgage their homes to start a business. For example, lawyers need to make a major capital contribution to their firms when becoming a partner, and doctors make significant investment in their practices.
2. There are many protections and fringe benefits to being an employee such as severance, maternity leave, disability and huge pension plans when they retire, including the very generous ones offered by our government to the Department of Finance employees that prepared these proposals. Small business owners do not have any of these available to them. Rather, they carry the inherent risk of starting and running a business that supports these very employees, and then in retirement they need to take care of themselves.
3. Professionals and many business owners spend years in University and then building their companies while employees are earning a salary. Employees do not, accordingly, typically have the debt carried by professionals and business owners.
Finally, if the government was so dedicated to creating equality between employees and business owners, it could have easily and very simply extended the same advantages to employees. For example, the Conservative government had introduced a provision allowing any person to income split. The first thing the Liberals did was to eliminate this provision. If they really wanted to help the so called “middle class”, they would have left this tax structure in place. Unfortunately, the current proposals are not about helping anyone, but rather are about taking away from those that are working hard to support their families and save for retirement. And, this is all being done under the guise of taxing the 1% wealthiest in Canada.
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