Tax changes will hurt innovation: Hootsuite CEO
SEATTLE The head of one of Canada’s best-known tech darlings says the federal government’s proposed changes to small business taxes could hamper innovation and prevent Canada from becoming a hotbed for technology giants.
“I’ve been an entrepreneur and a small business owner for a large part of my career. I know that a lot of those businesses operate on the margins,” Ryan Holmes, CEO of social media management platform Hootsuite, said in an interview at the Cascadia Innovation Corridor Conference. “I would encourage the government to look very closely because … it is causing a lot of concern to business owners.”
In mid-July, the federal government released a three-pronged plan to end several tax provisions used by some small businesses.
One provision at risk of being eliminated is income sprinkling, a practice that permits business owners to lower their taxes by passing income to family members, even those not active in the business, who are in lower tax brackets.
Smaller tech companies have created their own structures — much like doctors, lawyers and other small business owners — that provide the ability for them to have a different income stream or different way to flow income, said Bill Tam, CEO of The BC Tech Association.
For these companies, the proposal “has created the conditions for an additional worry” around taxation, he said, adding he’s heard these concerns from a few of the group’s 540 members.
Limiting income splitting will impact compensation for family members who may not be actively involved in the business, but share in its risk, and the practice is essential to entrepreneurs’ retirement planning, according to the local board of trade’s website.
If the government wants to have more head offices in cities like Vancouver, Holmes said, that won’t happen by convincing established companies to move to the West coast as that involves significant cost, among other issues.
“I think you need to be very favourable at the small end of the market.”