The time for Canadians to submit their feedback on the government’s controversial small business tax changes ends on Monday. And Finance Minister Bill Morneau has gotten an earful.
The bottom-line recommendation to Ottawa from the Canadian Federation of Independent Business (CFIB) is: Throw out what you have and start from scratch.
“Far more than a few tweaks of the proposals are required,” CFIB president Dan Kelly said in an emailed statement.
READ MORE: Trudeau’s tax reforms: Here’s how the loopholes work
The organization, which lobbies government on behalf of small business owners, recommended the proposed changes “be dropped and replaced with a process to work with the business community to ensure there are no abuses of income tax rules.”
Even economists who have defended some aspects of the reforms have expressed concern about the top-down approach adopted by Ottawa.
WATCH: Small business owners speak out against proposed federal tax changes
Are middle-class businesses right to be concerned?
Some commentators have portrayed some of the uproar provoked by the government’s proposal as inevitable resistance by the groups that are being asked to pay more taxes. But most would agree there’s more to the recent brouhaha over Ottawa’s tax overhaul attempt than that.
The CFIB maintains that the reforms would “affect middle-income business owners with as little as $50,000 in income.”
Several economists who analyzed the government’s proposals have found that the tax changes are designed to target high-income earners, as the Liberals claim. That’s because the changes target practices that are mostly used by high-income business owners or because the tax increases faced by middle-income businesses also caught in the net would be very small, or both.
READ MORE: Do Trudeau’s tax changes really only hit the rich?
A recent report found that the reforms would end up mostly hitting high-income professionals like doctors and lawyers, and not family farms and mom-and-pop shops.
However, the changes might very well affect middle-income entrepreneurs as well, by creating a pile of new, complex tax rules, Global News has heard from tax accountants. That alone could be an important hurdle for smaller businesses.
According to the CFIB, the cost of complying with existing rules is already disproportionately higher for smaller businesses. Companies with fewer than five employees spend over $6,600 to comply with regulations. For companies with more than 100 employees, on the other hand, that tab drops to around $1,400 per employee.
WATCH: Unpacking the Politics of the governments’ proposed small business tax changes
But there are other potential side effects. Some of the rules, for example, would likely make it harder for small business owners to pass their company on to their children, something that is already difficult under current legislation, according to the CFIB.
And Ottawa’s proposal to hike taxes on so-called passive income could hit investors who focus on providing capital for Canada’s tech startups, the CFIB and others have noted.
READ MORE: Will Trudeau’s reforms really mean 73% tax for small business?
Then there’s the question of whether the reforms are worth the effort from a cost-benefit point of view. One of the tax strategies the Finance Ministry is targeting with these new rules is estimated to cost half a billion dollars a year in lost federal and provincial revenues. Numbers are scarce on how much money the government is losing because of the other two tax strategies that are the target of the reforms.
In its comments to the government, the CFIB questioned whether the amount of revenue raised as a result of the reforms would be worth the added complexity and costs, not only to business owners, but to the government itself, which would have to implement the rules.
Among its recommendations, the group asked Ottawa to consider a “comprehensive review of the Canadian tax system with a view to fairness and simplification for all taxpayers.”
But the risk with that, as several economists have noted, is even more complexity, costs and pushback.
LISTEN: Former Dragon Bruce Croxon speaks out against the tax changes on AM640
Comments