Federal Finance Minister Bill Morneau was in Halifax on Friday as part of what his department is referring to as a national “listening tour.”
“We’re concerned that our tax system right now encourages some wealthy people to incorporate themselves so they can pay a lower tax,” said Morneau.
“We spoke about the measures that we’re putting forward and I had the opportunity to hear questions, comments and ideas from local business owners on how we could achieve our objectives.”
He said many of the things he heard in Halifax were consistent with those across the country: a mixture of criticism, feedback and an understanding that Canadians need to have a system that is fair over the long term.
“We talked about some people that sprinkle income among family members that don’t work in business and whether that’s fair or not,” Morneau said.
“I also heard from others that the way they manage their business is that their spouse is involved in the business, so for them they want to be able to continue to do that. And we do want to continue to do that, but we’re talking about how we do that.”
Matthew MacKenzie was one of a handful of business owners invited to Friday’s closed-door meeting. He and his wife own two companies: MacKenzie Atlantic Tool & Die and MacKenzie Healthcare Technologies.
He said that while he agrees that it is unfair for business owners to sprinkle income among their kids and parents, he doesn’t agree that it is unfair to split it with a spouse, given the added risk that comes along with business ownership.
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“The Minister was quite clear that this is still a proposed legislation, nothing is in stone and they are consulting. I don’t know if it truly felt like that today to me or to anybody else in that room,” said MacKenzie, adding he felt that Morneau is open to ‘listening with conditions.’
“I feel pretty strongly by the tone in the room and the tone by Mr. Morneau that there are a lot of decisions that they’ve made that they’re going to stick to regardless of what concerns are made by the general public or by business owners. Specifically, in relation to income splitting.”
MacKenzie said he was relieved the minister was able confirm that any past investment or income generated within a holding company would not be affected by the proposed changes.
However, he said that would likely mean that many businesses will rush to drain funds from their operating companies before the new legislation comes into affect.
“My fear is that you’re going to see a big influx of cash out of the operating companies into their holding companies prior to this legislation because people are going to want to try and capitalise on getting ahead of that change and trying to protect their future investment,” said MacKenzie.
He went on to say that such a change would have a negative impact on business growth and innovation.
“My understanding from the meeting today was that if I were to take that money back out, it is going to be taxed at the higher bracket and so we essentially will have less money that I could have to invest back into my business to grow, which I think is completely contradicting what the minister and the Prime Minister are trying to achieve here,” he said.
Other small business owners, such as Janet McKeough, tried to take part in the meeting but were locked out.
“It’s very frustrating. Our goal wasn’t to be disruptive, it was to be informed,” she said.
“It seemed like a very controlled group, and when you have a controlled group you’re probably controlling the response that you’re getting.”
Morneau will continue his tour in Fredericton on Saturday to speak at the Canadian Chamber of Commerce’s annual general meeting.