Hello Chestermere! I hope this week finds you full of gratitude (and turkey!) Please make sure you vote in the municipal election, and if you are a UCP member, please make sure you register BEFORE October 13 to vote in the UCP leadership race at www.brianjean.ca/register. If you do not register you won’t be able to vote! Check out facebook.com/LeelaSharonAheer for more details. I wanted to share a letter with you written by a friend of mine with respect to the disastrous tax changes the federal government is intent on making. As she said to me, here’s to making another change in 2019.
The Right Honourable Justin Trudeau September 29, 2017
Prime Minister of Canada
80 Wellington Street
Ottawa, ON K1A 0A2
CC: Rt. Honourable Bill Morneau, Honourable Andrew Scheer, Department of Finance
SUBJECT: Proposed legislation – “Tax Planning Using Private Corporations”
Dear Mr. Trudeau,
I am writing to express my concerns in regards to the proposal paper released by the Department of Finance: “Tax Planning Using Private Corporations” on July 18, 2017. As a Chartered Professional Accountant and a business owner myself, I am very concerned with how these proposals will affect all small business owners and exponentially affect the complexity of corporate tax compliance.
I am in a unique position to be able to speak to this matter on several different levels. As an accountant, I have several clients, mostly middle class, that will be affected by this. As a business owner, my family, solely depends on the income from this business. Lastly, as a woman in business, I have faced the challenge of fully funding my own maternity leave twice over, without any assistance from the government.
The proposed legislation suggests that small businesses are taking advantage of the tax system. The proposal states that the number of CCPC’s has increased substantially from “1.2 Million to 1.8 Million,” Professional services corporations have tripled, people are choosing to incorporate, and that there is more CCPC income. Is this not positive growth? Is this not the business environment that Nations strive for? These numbers have increased because Canada has been instrumental in promoting small business growth. It is irresponsible by the government to propose changes that will halt and destroy this momentum and the business contribution to our economy. Canada has finally become an attractive business environment, and this proposal sets us back decades.
First Proposal Item: Reduce Income Sprinkling.
One of the issues is income sprinkling to lower tax bracket individuals in the family. The spouse of a business owner is generally heavily involved in the business or has to deal with all of the other family matters, in order for the business owner to be able to run their business. The collective family unit, regardless of labour or capital contributions, bares the entire risk of that family’s survival. The spouse and the children have had to endure the ups and downs of the business and made tremendous sacrifices. This could be remortgaging their house to make payroll, missing extra-curricular activities at school due to business obligations, family tension due to financial stress, limited family time with business owner, and no compensation when there is no money in the business.
As business owners, we put our blood, sweat and tears into our business, as do our families. We suffer as a collective unit when things go bad, and should be able to reap the benefits as a collective unit when things are better. The proposal will have years of negative impact on the economy as mainly professionals will be affected by this. We are going to lose our competitive advantage to recruit and retain professionals in Canada. This will be felt for years as our growing population requires these individuals and services.
Second Proposal Item: Eliminating Passive Investments.
The next issue is the ability of private corporations to hold passive investments such as real estate and stocks. The proposal does not compare apples to apples and compares a small business to an employee earning over $250,000 which is hardly ever the case. Many businesses don’t make that kind of Net Income, so there is a big disparity in the numbers used, but no mention of the disadvantage to business owner’s when there is no profit. Employee’s have health care, severance pay, pensions, disability, maternity/paternity leave, employment insurance and much more. In fact, you make the business owner’s pay for these things for the employee, without even being able to have it for ourselves.
Business is not just about operating, making profit and paying tax. Any business owner can attest to the fact that not only do we think about the current health of our business, but also the long term financial stability. This includes the ability to diversify as well as have a rainy day fund. Businesses operate in different cycles where one month or year could be great and the next a loss. The ability to diversify and keep this rainy day fund is what ensures that our employees and vendors get paid. To make an incorporated business comparable to a non-incorporated business, and make them take out all of their funds, is a very irresponsible move. The lack of a rainy day fund, not being able to diversify, directly leads to more severe consequences, should there be an economic downturn. In fact, it has been proven repeatedly that business that diversify have a stronger ability to survive an economic downturn.
If corporate owners do not have an incentive to leave money in their corporations, they will be withdrawing all of their profits. This terrifies me as an Accountant and business owner as I know that once the funds are in their personal account, there is no accountability. The proposal promotes irresponsible business practices. It also changes the landscape in which business is conducted. There are going to be a lot of angry vendors and employees if the business does not have the ability to pay. Most of our clients have money in term deposits, GIC’s and savings that is liquid in order to cover any emergencies. Is this being take on the table too? You tell me where can we leave our rainy day fund, if we are one of the lucky few to even have one? The entire premise of having a business and forgoing the benefits of full time employment is to build wealth within the company, and having a retirement plan in place. This is the fundamental base of business in Canada for the last 30 years, and what the government tells us they want us to do.
Mr. Trudeau, if you want things to be fair, bring forth proposals at the same time as this one that gives me an income when business is slow like EI. If I get injured, I want the government to pay me a salary like they do with disability for employees. If I have a baby, can I come to you and ask you for 18 months of pay so I can attend to the baby. If I don’t have any money left in retirement, are you going to give me CPP? Do I get health benefits from anyone, or do I have to pay for them myself? If you want to make things equal, then make things equal. Even if you replace my income in any of the scenarios I’ve mentioned above, I am still left with a huge liability of employee issue’s, taxes, vendor invoices, closing accounts, filing requirements, all while a regular employee can just walk away from a job clean, and you will even pay them a severance pay to boot! You tell me how this is fair?
On a personal note, I have had to have two babies, that I have had to deliver and raise in between my business meetings, with no assistance from the government. Many businesses could not survive an owner leaving for such a long amount of time. Luckily, I had a rainy day fund so my staff would be paid and my business would weather the storm. No maternity leave for me. Fully funded by me.
This money tax grab that supposedly targets the small business owners, fails to recognize the collateral damage that will extend to the employees, vendors and ultimately the government. There will be a lot less incentive for business owners to grow, less corporations will be created, resulting in less corporate tax. Less employees and payroll tax and less purchases, thereby, reducing the GST/PST collected.
Preparing a corporate tax return under the new proposal is going to be costly and complex for the average business owner. Our system should be based on simple and fair reporting to ensure the completeness and accuracy of the tax returns submitted. Compliance and administration for CRA will be higher, on an already overburdened system.
If you are penalizing passive investments, then corporations will not buy them, the economy will suffer and as a result you will not get the tax dollars your government is so greedily trying to obtain.
Third Proposal Item: Converting income in to capital gains.
I own an accounting practice for the last 10 years and have never encountered a client trying to use this tax strategy. It is not common for the average small business owner. The government should be making the continuation of business and transition of the business to their family and children an easy step, and not more difficult. In most cases, clients are trying to get their children to be a part of the family business while not wanting to pay a huge amount of tax.
This is a one sided proposal that only negatively impacts the core of our free enterprise system. You are penalizing the hard working small business owner and cite fairness, but have done nothing to address the inequality as far as benefits that employees receive, that the business owners do not. You are claiming to help the middle class, but this is who this essentially hits the hardest. You are knocking down the “Canadian Dream” to own a business while suffocating the economy by not encouraging businesses to grow. You are losing jobs in this proposal because there is no incentive for Corporations to make more money.
If the government was serious about getting feedback from the public on this proposal, you would have provided a more reasonable amount of time as has been done in the past. This raises questions as to the government’s motives.
As we eagerly wait out until the next election, I am sure that I will have a lot of clients and potential clients that will go back the last 7 years on both their personal returns and corporate returns to counter act your proposals and effectively tax plan. I can only imagine the number of T1 Adjustments and T2 Adjustments that the Canada Revenue Agency will get, should everyone decide to do this. You should brace yourself.
As an accountant, you have let me down, I have given my clients retirement and succession planning based on your long standing policies that you want to change, and you have moved the goal posts.
As a business owner, you have killed my drive to grow and invest into my Corporation, the economy, or in more employees, as I will just pay more tax, and will have to assume more risk.
As a mother in business, you have let me and my family down. I left my business to bare my children, and it suffered, and you did nothing to make things more equal for me and my family, when life’s events happen.
As a Canadian citizen, you have let me down, as I voted for a government that I believed wanted to foster business growth and economic growth. You have now lost my confidence and future vote as well as many other Canadian’s!
Simeen Gaidhar-Bhanji, CPA, CA
Simeen Bhanji Chartered Professional Accountant
Suite 310 – 8678 Greenall Avenue