Local business community concerned about proposed federal tax changes

Proposed Canadian taxation changes are ruffling some feathers in the local business community, potentially doing more harm than good.

Pictou County Chamber of Commerce executive director Jack Kyte said the prevailing opinion among the chamber membership is that the proposed changes will be detrimental to the business community.

“It’s a fundamental change to tax structure, and there’s a great deal of effort now being made to speak with the government, to help them understand some of the impact,” said Kyte. “Hopefully they will make some amendments to the proposed legislation.”

The federal government’s plan is to improve fairness in the tax system through a series of proposed changes to business taxes, and the changes are the subject of consultations between the federal government and business owners across Canada.

According to information from the Department of Finance Canada’s website, the changes entail the closing of tax loopholes and a series of amendments to tax rules, with the objective of making sure the richest Canadians pay a fair share in taxes.

Kevin MacDonald, co-owner of accounting firm MacDonald and Murphy Inc., said the proposed tax changes would harm owners of small businesses.

The chartered accountant believes an attempt to financially level the playing field between small business owners and employees of larger businesses is misguided, because the government isn’t recognizing that small business owners take risks that employees of larger businesses don’t take.

“A small business owner and an employee are totally different individuals, from a tax perspective. When you’re operating a business, the government has had to provide certain incentives to encourage growth in the economy,” said MacDonald. “They have allowed small businesses to use a deduction to get a lower rate of tax.”

MacDonald said many business owners take the money they save from such deductions to grow their business, save for retirement or a rainy day, or share their wealth with family members.

“A lot of businesses will save their money in their corporation. Since their corporation gets the lower tax rate on its active earnings, they have more money leftover for that purpose,” he said.

MacDonald said the problem with the federal government’s approach is that the changes meant to keep larger businesses from taking advantage of the system will punish small business owners – who also have their money saved inside a corporation.

He said the proposed changes don’t take into account the tremendous amount of financial risk small business owners undertake in doing business.

“These are people who start their businesses, providing 10 or 15 jobs. They’re borrowing money from the bank, and drumming up the business,” said MacDonald. “If they do well and reap the rewards, more power to them. But if they don’t do well financially, nobody’s there to help them.”

He acknowledged that he understands what the government is trying to do, saying that “they’re after high-end professionals who have money in corporations … but they’re doing it in a broad blanket over small businesses, too.”

He added, “It could potentially drive a lot of doctors out of our country. They have corporations and mechanisms to move money out to family members, just as small businesses do.”

The consultations going on in relation to the proposed changes relate to an objective of Budget 2017: Addressing planning strategies that involve use of private corporations – strategies that allow high income individuals to gain tax advantages not available to other Canadians.

Kyte said although the federal government’s proposed changes are an effort to create fairness in Canadian taxation, the actual results will be unfair to many people.

“It’s hard to have one single policy that’s the same for everyone,” said Kyte. “Everyone is in a different situation, relative to taxation.”

He said the tax changes will have a negative impact on small business owners in the area who, over the years, have been able to put money aside for pensions, health benefits and personal savings.

“Now, with the proposed changes, there’s a fear that the funds set aside for those things will be taxed at a very high level,” said Kyte.

Sean Fraser, MP for Central Nova, said the finance minister is looking to eliminate portions of the tax system that allow the wealthiest members of society to save more and avoid more taxes than others.

Fraser said the other objective behind the changes is to reduce the ability of wealthy business owners to use their business as a passive investment vehicle to save money and defer taxes over the course of time.

On a local level, Fraser said he wants to ensure the new changes the federal government seeks to implement “are not so blunt that they catch small business owners and people who wish to do things like save for retirement in a legitimate way.”

Fraser emphasized that the proposals are just that – proposals. He added: “The consultation process is going on right now, and the (Finance Minister Bill Morneau) is actively seeking feedback until Oct. 2.”

Fraser said he hopes the federal government seriously considers what it hears through the consultations in good faith, and makes necessary changes in the policy.

He added, “at the same time, with local jobs being my priority, I don’t want to see our plumbers, and electricians and professionals with jobs – and creating jobs – in Pictou County being subject to changes that would interfere with their ability to succeed and create jobs in the community.”