Tax fairness. It’s been on many a Canadian’s lips since Bill Morneau two-left-footed his way to announcing a listening tour across Canada, for his tax reform proposals on Canadian-controlled private corporations (CCPC).
A tour that ran head long into a Blitzkrieg. From Andrew Scheer’s gleeful Conservative Party, to Ontario doctors seemingly ready for any fight, including amongst themselves, to lawyers, accountants, small farmers, and left-leaning voters accustomed to spitting out Trudeau’s name, the pile-on was sizeable and surgical.
And, for the most part, false. Yes, THAT false.
Talk of middle class assault at the hands of the Liberals, doctors up and leaving Canada or refusing to service their patients, a ninety-three percent tax rate, a seventy-three percent tax hike, female doctors using passive investments as a means to fund maternity leaves or dire straights predicted for farmers flashed on television and digital screens across Canada.
The latter two groups have justifiable cause for concern with the Liberal government’s proposed tax reform. And it sounds like their concerns will be addressed when Morneau announces amendments to the original proposals.
But the rest of the vitriol was hogwash, repeated by special interests or politicians looking to make hay with with ill-informed tweeters and Facebook users.
I might add, aided and abetted by an unprepared Minister of Finance.
CCPC owners are decidedly NOT middle class. Ninety-seven percent earn over $150,000. They are the 10% or 1% often benefiting from the malaise of social and economic inequality.
The three-percent of CCPC owners make less than $150,00 are considered as middle class. But they are not affected by Morneau’s proposals. In fact, there are no real benefits for them to even be incorporated, as they are losing out on contributions into RRSP and TFSA programs. Pension programs which cost the federal government $26 billion annually.
That’s a conversation those three percent should have with their accountants.
Let’s also keep in mind, all small business owners will still pay a 10.5% tax rate and be able to write off all operating and overhead expenses. That doesn’t change.
And that’s better than the corporate rate of 15%, or the personal income taxes the rest of us pay.
As for the 73% tax hike falsehood found in ConservativeLaLand, repeated ad nauseam in and out of Parliament, it only applies when certain passive investments are withdrawn out of the corporation and paid out to the business person’s personal account. In Ontario.
Each province has its own tax treatment.
Keep in mind, these CCPC owners enjoyed a deferral on taxes during the time those passive investments were in the private corporation. Just to put it that into context, CCPC owners have $27 billions in passive investments.
Un-taxed. Sitting and growing. For retirement purposes. Or to fund sick and maternity leaves. Perhaps that’s an area Morneau can review and revise.
But, reinvestments into business to support growth, innovation, capital expenditures or new hires are not affected by any of the proposals. So all those warnings about small business being penalized and prevented from investing in their business is hockum.
In fact, small business, generally, has a poor record of investing in research and development. They account for only 27% of total R&D dollars spent in Canada. (Statistics Canada, 2015).
While I’ve always wondered how R&D dollars are accounted for on a macro level in Canada, I do know small business, ex technology companies, are often creative on how they innovate on small budgets.
As for the oft repeated, but incorrect narrative of small business being the engine of our economy, unfortunately, only 11.5% of small business export their good or services. (Statistics Canada, 2015). And most of that is to the United States. As a result, they only contribute 30% to Canadian GDP.
Is that a fair measure for small business that are often the bedrock of smaller communities? That’s a conversation for another day. And maybe, better lends itself to a modification on the narrative above.
We do know, their employment share has been stable at 70% of total Canadians employed for many years. Yes, they play a crucial role. But they are not the national engine. For that to change, they have to make significant leaps into exporting. Something CFIB, an organization that represents 10% of all small business, only recently started to support in a meaningful way.
Note: CFIB is a small player in the small business community. Big megaphone. Larger than it may deserve.
As for income sprinkling: remember when Stephen Harper introduced it to all parents with young children in 2014? Justin Trudeau canned it to fund the Child Benefit cheques rolled out at the start of his tenure.
How many of CCPC owners using this tax strategy are truly paying for their family members’ labour? I have no problem allowing those to continue, especially in farming, provided they can offer verified proof. As for the others? Nope. That’s money we could use for Canadians caught on the wrong end of the inequality spectrum.
Oh, and those doctors threatening to cross the border because Canada has suddenly become a backwater? You might want to consider private healthcare costs and the social, economic and cultural costs of living in Trump’s United States.