Photo: The Canadian Press
The Kelowna Chamber of Commerce says proposed federal tax changes will disproportionately affect small businesses.
Most business owners in the Okanagan anticipate they will be affected by a federal government proposal that would change the way corporations are taxed.
This, according to Kelowna Chamber of Commerce President Tom Dyas, is further evidence that small businesses owners will bear the brunt of changes the federal government says are aimed at wealthy Canadians.
The proposed tax changes are outlined in a recently released consultation paper, showing a handful of proposed laws that would limit business owners’ ability to use family members to defer taxable income, and reduce tax advantages for people working inside corporations.
Federal Finance Minister Bill Morneau said the changes are targeted at the “richest Canadians,” who are “unfairly exploiting the tax rules designed to help [small] businesses thrive.”
Big impact in Kelowna
A recent Kelowna Chamber of Commerce survey asked respondents to weigh in on the proposed changes, and nearly everyone who answered said they stand to lose.
Nearly all of the 203 people who took the survey said they were business owners, and more than 80 per cent of them said the government’s proposed changes would affect their business.
Those who responded were overwhelmingly small business owners, employing an average of 2.2 people.
“My business is my only source of income and I take a huge amount of risk with it. The impact to my husband’s small business will be huge as well. It may even mean downsizing and laying off staff,” the respondent said.
Another participant owns a small business that only makes a tiny profit, and said “any changes in tax laws that affect my profitability will likely result in the closure of the business and personal bankruptcy.”
Too wide a net
Image: Contributed
Earlier this month, chamber president Tom Dyas bent Prime Minister Justin Trudeau’s ear over proposed tax changes.
Dyas believes the proposed changes would cast far too wide a net in an attempt to catch a relatively small slice of the population, and that middle-class people running their own businesses are most likely to get caught up in it.
That’s an issue, he said, because small businesses tend to form the backbone of local economies.
This is particularly in a place like Kelowna, he said, “where the majority of our businesses, well in excess of 75 per cent, have one to three employees.”
Dyas said numbers from the rest of the country support his claim.
He said there are roughly 1,297,000 small businesses in the country that are incorporated, and have the ability to structure their taxes through the current rules.
Out of those, two-thirds are run by folks with an annual income of $77,000, putting them squarely in the middle class.
The Kelowna chamber, along with BDO Canada and Crowe MacKay, also recently released numbers Dyas says contest a federal government idea that people running a corporation making $250,000 a year can pay fewer taxes than an employee making $50,000 a year.
The chamber has also joined the growing Coalition for Small Business Tax Fairness, which recently called on the federal government to do more consultation before making any tax changes.
The wealthy lobby
In an editorial published by Canadians for Tax Fairness, Diana Gibson argues that lobby groups like the Coalition for Small Business Tax Fairness are instruments the wealthiest Canadians use to block tax laws they don’t like.
“The very rich, who have most to lose or gain, are the ones who are most vocal,” she says. “Middle and lower income Canadians don’t participate. The result is a gradual but steady increase in the number of tax breaks for the rich, erosion of government revenue and a tax system that is more and more unfair.”
She argues that the current small business tax rate “wildly benefits the wealthy over everyone else,” pointing to a study from economist Jack Mintz that found 60 per cent of the small business deduction goes to households with more than $150,000 in income.
Slow this train down.
Dyas said a glance at the membership of the Coalition for Small Business Tax Fairness shows how widespread its support is.
He admitted some of the proposed changes are worth considering further, and probably even changing, but that the government needs to take much more time to do that properly.
“There are certain ones that I think need to potentially look at being dismissed, but it’s just the time frame that it’s coming at everybody,” he said.
When Morneau released the consultation paper July 18, he gave 75 days for citizens and organizations to weigh in. Dyas said making such major changes with such a short consultation period, especially when most of that period was in the middle of the summer, just doesn’t make sense.
“The implementation of the tax needs to be true, it needs to be fair, it needs to represent individuals,” he said. “I think the message the chamber and everyone is trying to send on this is this train is moving far too fast. It truly, truly, truly needs to slow down.”
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