Seminar tomorrow addresses the issue

The federal government has released a document Consultations on Tax Planning Using Private Corporations. This midsummer proposal to implement some of the most significant corporate tax changes in 50 years has drawn the ire of the Cranbrook Chamber of Commerce along with chambers across Canada.

“The government has rather generously labeled these changes as ‘tweaks.’  These are not tweaks! The government has just proposed the most radical tax overhaul in 50 years. We’re particularly worried about the impact on business from one, a new tax on investment income in a corporation and two, tough new rules for compensation in family businesses,” said Hendrik Brakel, Senior Director, Economic, Financial & Tax Policy with the Canadian Chamber of Commerce.

“Finance Minister Bill Morneau dropped this consultation paper in mid-July, in his words, ‘aimed at restricting the use of private corporations as tax-saving vehicles,’” said Cranbrook Chamber executive director David D. Hull. “The “consultation” is open to October 2 but let’s be honest, not withstanding a successful coordinated uprising by the business community leading to change, this proposal will become legislation. Calling this a consultation will most certainly become rather disingenuous.

“To the average person the words ‘Private Corporation’ conjures up images of big business, ‘the man,’” said Hull. “In fact, most every business in Cranbrook is incorporated. The two-man plumbing company, the mom and pop small store, your dentist and the franchisee at the sandwich shop are corporations and certainly not ‘the man.’ We are not talking multi million/billion dollar operations using so called loop holes to avoid paying taxes.”

The Cranbrook Chamber of Commerce has joined chambers across Canada under the leadership of the Canadian Chamber of Commerce to mount opposition to what is considered draconian changes to tax legislation.

The Minister says it’s all about “fairness,” and his consultation document compares the tax treatment of a business owner with that of an employee to point out corporations have “unfair” advantages. But, the comparison makes no sense—there are good public policy reasons for why owners are taxed differently, Hull stated.

Unlike an employee, a business owner doesn’t get a pension or health benefits or vacation pay. They have invested their own money to get the business started. They have pledged their personal assets (house, car etc.) as collateral for a business loan. They have employees who depend on the business operating successfully. And, if nobody wants their goods or services next month, they do not earn a penny, he pointed out.

There are risks inherent in establishing a business that simply do not exist for salaried employees. If the rewards are squeezed too tightly, would-be entrepreneurs may opt for the safer option of salaried employment.  This would be a huge detriment to the Canadian economy at small businesses drive more than 90% of the economy, Hull said.

“The government wants to tax ‘passive’ (invested) income. It says it’s a crackdown on ‘high income individuals,’ but the rules would apply to all incorporated businesses in Canada, most of whom are restaurants, retailers, farmers and consultants—to punish them for saving and investing,” Brakel stated, adding, “It gets worse! Finance Canada also expects to raise $250 million by cracking down on ‘unreasonable’ salaries paid to family members, which it says diverts corporate income into lower tax brackets.

“But, to pull in $250 million, CRA will have to tax over $1 billion in salaries and audit hundreds of thousands of businesses. Imagine the litigation! You’re paying your spouse $80K, but the CRA believes he or she should only be earning $50K. Do you go to tax court? An owner told us, ‘if my son had not worked 12 hours a day, my business might not have succeeded. Painting us all as cheaters is unfair and discriminatory.’”

Incredibly, Brakel said, Finance Canada has managed to design a set of tax measures that would hit the maximum number of businesses in the most complicated way for a small amount of revenue. The expected $250 million is less than one per cent of the federal deficit.

“Nobody supports tax evasion or loopholes. But these changes will punish legitimate businesses big and small and personal corporations,” said Hull. “These changes come on the heels of the government cancelling reductions in the small business tax rate, tightened rules on partnerships and started taxing work in progress. That’s on top of new carbon taxes, raised CPP premiums and an increase in the EI rate. Our members are asking why this government keeps raising taxes on business. Their focus should be on generating wealth, rather than taxing it.”

To assist Cranbrook businesses and individual corporations to understand the magnitude these changes will affect their business the chamber is holding two seminars Thursday, September 7.

There will be a breakfast event starting at 7:30 a.m. and an afternoon session starting at 5 p.m.  Tickets are available at www.cranbrookchambers.com.

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