Trudeau’s small-business numbers don’t add up

Where on earth does Prime Minister Justin Trudeau get his information about small businesses?

When he first raised the issue of proposed Liberal tax reforms for small businesses during the 2015 federal election, he told the CBC’s Peter Mansbridge on Sept. 8 that: “We have to know that a large percentage of small businesses are actually just ways for wealthier Canadians to save on their taxes and we want to reward the people who are actually creating jobs, and contributing in concrete ways.”

In the face of criticism from small businesses and political opponents about those comments, The Canadian Press reported two days later that: “Trudeau seemingly doubled-down on the comments when pressed about them ... saying that several studies have shown that more than half of small business owners are ‘high net worth individuals who incorporate ... to avoid paying as high taxes as they otherwise would.’ ”

Neither of these statements make sense.

The Trudeau government, in defending its proposed smallbusiness tax reforms, has said the two-thirds of Canadian smallbusiness owners earning less than $73,000 annually will not be affected, with little impact on small businesses earning less than $150,000 annually.

But if two-thirds of Canadian small-business owners make less than $73,000 annually, how can “more than half” of all small business owners be, as Trudeau said, “high net worth individuals who incorporate ... to avoid paying as high taxes as they otherwise would”?

Let’s leave aside Trudeau’s reference to “more than half,” and go with his description that “a large percentage of small businesses” are tax dodges for the rich.

One of those tax dodges, according to the government, is “income sprinkling” where a small business owner spreads the business’ income around to family members, such as a spouse or children, to lower his or her tax rate.

The federal finance department estimates 50,000 Canadian families operating small businesses use income sprinkling.

Statistics Canada says that as of December 2015, there were 1.14 million small businesses (one to 99 paid employees) constituting 97.9 per cent of Canada’s 1.17 million employer businesses.

That means about 4.4 per cent of all small businesses use income sprinkling.

That’s Trudeau’s idea of a large percentage?

Especially since the Liberals aren’t going to end income sprinkling, which is legal, but establishes a “reasonableness” test to ensure family members receiving income from a small business actually work for the business.

So the number of small-business owners the government says it’s really targeting on income sprinkling is even less than 4.4 per cent.

There are studies suggesting more than half (60 per cent) of all small-business deductions go to owners earning over $150,000 annually and that up to 80 per cent of taxpayers in the top 0.01 per cent of income earners own small-business firms.

That indicates there are a relatively small number of small-business owners the government should be targeting for tax reform, not “a large percentage” or “more than half.”

According to Statistics Canada, small businesses as of December 2015 provided 70.5 per cent of the 11.6 million private sector jobs in Canada and 87.7 per cent of the 1.2 million net new jobs from 2005 to 2015.

So if Trudeau wants to reward those who are “creating jobs and contributing in concrete ways,” why did he break his election promise to cut the small-business tax rate from 11 per cent to nine per cent, by freezing it at 10.5 per cent?