You can’t blame business owners for feeling like they’re being bombarded by government.
Increased employment insurance premiums, new environmental levies, minimum wage hikes: announcements about new taxes and regulations became a common occurrence in 2017.
But perhaps the most significant tax announcement of the year, maybe the most significant in decades came this summer, when Finance Minister Bill Morneau introduced a series of proposals that would dramatically change the way small businesses in Canada are taxed.
The Canadian Federation of Independent Business began consulting tax professionals and what we learned was alarming.
The proposals if implemented would have restricted small business owners from sharing income with family members, hiked taxes on some investments, and would have made it more difficult for entrepreneurial families to transfer their businesses to their sons and daughters.
And, contrary to the government messaging (which seemed to characterize small business owners as fat-cat tax cheats), we learned that these changes would have hurt the vast majority of middle-income business owners including those who earn as little as $50,000 in annual income.
The CFIB also helped organize opposition, and played a role in forming a coalition of more than 75 business groups representing hundreds of thousands of small businesses with one unified message: take these proposals off the table and, instead, work with the business community to address any shortcomings in tax policy affecting private corporations.
The outcry by individual businesses was incredible. Business owners took direct action, including reaching out to their MPs, setting up special websites, ex-pressing their outrage on social media and packing local meeting halls.
Following a hurried 75-day consultation period, the government retreated, at least partially.
They reinstated a 2015 election promise to reduce the small business corporate tax rate to nine percent.
The government also made some important changes to their original proposals. Most notably, they dropped provisions to limit the use of capital gains in business succession. It also said they will allow small businesses up to $50,000 in annual income from passive investments (the equivalent of a five per cent return on a $1 million investment) and clarified rules around sharing income with family members.
Are the changes enough? The short answer is no.
While the government has backed away from its original bluster, these are still new tax measures which will likely make it more difficult for business owners to grow their businesses, innovate and create jobs.
Specifically, the $50,000 threshold for passive investment is still very low: barring any further concessions, larger passive investments will be largely taxed away, denying a growing farm the resources it needs to expand or to buy that new piece of equipment needed to improve its productivity.
Also, the current provisions around sharing business income among family members are still worrisome, especially for farmers who traditionally employ family members.
If the provision is passed, it will be up to the Canada Revenue Agency to determine if the spouse or adult children made a “meaningful” contribution to the business. This is the same agency that recently ruled a dishwasher’s 50 per cent off a pizza lunch following a shift should become a taxable benefit.
We are still fighting for the government to release an impact assessment on all remaining tax changes and to allow for an additional period of consultation.
What this tax fight has demonstrated is that there is a growing sense on the part of entrepreneurs that governments don’t understand them or appreciate their contributions.
This is significant.
The tax fight was also evidence that there is strength in numbers. A unified opposition and strong push back were able to gain significant changes to the original unfair tax proposals.
Dan Kelly is president and chief executive officer of the Canadian Federation of Independent Business.