Last night business and association executives, as well as senior public servants gathered at our annual Crystal Ball Symposium to hear from leading experts on how trends in technology, the global economy and international politics will affect Canadian business 2019 and beyond.
This year’s event featured Linda Mantia, Chief Operating Officer for Manulife. Responsible for globally leading corporate strategy and corporate development, analytics, technology, marketing, innovation, human resources, regulatory and public affairs, global resourcing and procurement, and the global program office. Ms. Mantia and the Canadian Chamber of Commerce’s Chief Economist Trevin Stratton discussed topics ranging from the growing economic divide and the national economy to strategies for businesses during this period of change.
In the full report, released today, we lay out what we heard over the course of the last year about the environment businesses expect to be operating in throughout 2019 and the implications that has for policy-makers and business leaders.
This report, which is read widely by decision-makers in government and elsewhere, articulates a series of clear priorities and objectives that, if addressed, will give Canada a competitive edge, improve productivity and grow the economy.
It is key that the 10 Ways to Build a Canada that Wins reflects the views of our members—businesses big and small throughout Canada—especially in an election year. That is why, this year, the Canadian Chamber of Commerce is partnering with Hill+Knowlton Strategies on this feedback exercise.
Canada’s regulatory system is smothering business in Canada, thanks to a growing mix of complex, costly and overlapping rules from all levels of government. A new report by the Canadian Chamber of Commerce, and supported by the Oakville Chamber of Commerce, Death by 130,000 Cuts: Improving Canada’s Regulatory Competitiveness, calls on governments to modernize their regulatory frameworks and give businesses in Canada room to thrive.
“Inconsistent and unpredictable rules and processes are making it difficult for businesses—whether large or small—to keep up and comply. This leads to our businesses being less competitive and Canada becoming a less attractive place to invest, start or grow a business,” said the Hon. Perrin Beatty, President and CEO of the Canadian Chamber of Commerce. “Regulations are designed to keep us safe and to create a level playing field. But when they start to smother businesses, that becomes a real problem.”
As the U.S., our largest competitor and trading partner, has recently implemented significant corporate tax and regulatory reforms, Canada cannot afford to fall further behind. Today’s report identifies opportunities to increase public and investor confidence in Canada’s regulatory systems and provides clear recommendations to government on how it should be done.
“The Oakville Chamber partnered with the Canadian Chamber to release this important report” said Drew Redden, President of the Oakville Chamber of Commerce. “It supports the results from the latest Advocacy Survey we distributed to our members, in which over 70% stated that regulations are unreasonable and excessive. I look forward to meeting with our local elected government officials to discuss how we can work together with regulators and businesses to improve the competitiveness of our regulatory systems.”
Some of the recommendations to improve regulatory competitiveness include:
Immediately convene a government-business regulatory competitiveness working group. The working group would develop recommendations for the federal government to measure and reduce cumulative regulatory burden. It would also develop recommendations for governments to ensure a consistent application of regulatory guidelines across jurisdictions and ensure the adoption of best practices by regulators.
Give regulators economic growth and competitiveness mandates to ensure economic impacts receive appropriate consideration in decision-making while preserving necessary protections.
Increase federal leadership in eliminating internal trade barriers to trade through clear goals, timelines and accountability as part of the Canadian Free Trade Agreement.
Validate the quality and consistency of regulatory cost-benefit analyses from departments and agencies before regulatory proposals are submitted for Cabinet approval.
Improve regulatory consultations through earlier engagement with stakeholders while ensuring processes are transparent and evidence-based. Project-based public consultations should be time-limited and focused on projects, not other policy issues.
Make overly prescriptive regulatory frameworks more flexible to better accommodate rapidly changing business environments by moving to risk- or outcome-based regulations where appropriate.
Increase regulatory alignment with Canada’s trading partners by integrating regulatory cooperation into free trade agreements and design new regulations with alignment by default where it is in Canada’s economic interest to do so.
Budget 2018 is primarily about spending—new spending initiatives and enhanced spending for programs that aim to support low-wage Canadians, address gender inequality, support First Nations development, strengthen indigenous rights and self-determination, promote skills and research, improve health and environmental stewardship and enhance justice and security.
Some of the spending initiatives announced in the budget will help business, particularly women entrepreneurs and small businesses, but they are limited in scope. There are also some important improvements in government policies—particularly with respect to the tax treatment of small business and the simplification of business support programs.
The government is intent on tightening tax rules and clamping down on tax avoidance. It should be focused even more intently on bringing its books back to balance and creating a tax and regulatory environment to support business investment and economic growth.
The budget projects the federal debt will increase by almost $80 billion over the next five years, although the government’s debt-to-GDP ratio is expected to decline slightly, thanks to continued strong economic performance. The government is counting on a buoyant economy to fund its spending initiatives and meet its fiscal targets. Its rosy economic assumptions will be put to the test by the risks it identifies itself in the budget—growing protectionism and uncertainty over NAFTA negotiations, tightening monetary policies worldwide and the risk higher interest rates pose for an already overextended household sector in Canada. Recent U.S. tax reforms are another serious risk to business investment in Canada that is missing from the budget’s calculations—we are awaiting further analysis.
Higher interest rates are certain to throw the government off its fiscal course—a 1% increase in the cost of borrowing alone translates into a $3-billion increase in the federal deficit over a period of five years. But, what is even more of a concern is that the government now has very little room to respond to an economic slowdown or any other problem affecting the Canadian economy. The leeway it has enjoyed to reduce taxes and increase spending in an era of low interest rates is quickly coming to an end.
Now, more than ever, Canada needs to undertake a comprehensive review of its tax competitiveness—and act with urgency to implement measures that will retain and attract business investment in Canada. That is the only way we can shield the Canadian economy against the headwinds that lie ahead. And, ultimately, it is the only way we will be able to pay for the government’s ambitious spending plans.
New draft legislation on income sprinkling still raises concerns, says business coalition opposing tax changes
The legislation on income sprinkling released by Finance MinisterBill Morneau, while a step towards clarity, still represents an administrative and financial burden for a number of small businesses and the families that own them.
The Coalition for Small Business Tax Fairness, a unified voice of over 74 organizations representing hundreds of thousands of business owners across the country, remains concerned that the new rules will cause business owners to have to cut through burdensome interpretative red tape in their efforts to prove that they or family members belong in one of the categories that would exempt them from the new sprinking rules. The coalition continues to urge government to create a blanket exemption for spouses.
“The measures announced by Min. Morneau leave many small business owners scratching their heads, especially if they will have to deal with the Canada Revenue Agency interpretation of reasonableness,” said the Hon.Perrin Beatty, President and CEO of the Canadian Chamber of Commerce. “Although there has been some improvement, these are not measures to be rushed. This situation highlights the need for an in-depth overhaul of our tax system, in order to make it more competitive.”
“The measures announced are slated to come into force in two weeks. That’s far from enough time for businesses to adapt,” saidDan Kelly, President of the Canadian Federation of Independent Business. “We continue to urge the government to slow down, and to listen to the recommendations from the Senate Committee on National Finance.”
The Senate Standing Committee on National Finance issued a report that recommends the government withdraw the proposed changes to the taxation of private corporations inCanada, or barring that, to push back their application to 2019. The Senate Committee is also issuing a recommendation to proceed with an in-depth review of the country’s tax system.
Given the complexity of these proposals, more time is needed to ensure that these changes can be implemented and do not harm small businesses, the backbone of the Canadian economy. The coalition stands ready to work with the government to find solutions that won’t adversely affect small business’ ability to grow, innovate and create jobs.
The Coalition for Small Business Tax Fairness is encouraging business owners and other concerned Canadians to contact their Members of Parliament and use the hashtags #unfairtaxchanges #taxesinéquitables on social media. For the full list of Coalition members, please visitsmallbiztaxfairness.ca.
On October 16, Finance Minister Bill Morneau announced the federal government’s response to the more than 21,000 submissions it received during the previous three months with regard to the government’s proposed changes to the tax treatment of small business.
The key provisions contained in his announcement and the Canadian Chamber’s messaging with regard to each are summarized below.
In addition to responding to the government’s new proposed tax changes, the Canadian Chamber Network has called on the government to undertake a comprehensive review of the tax system recommending that it establish a Royal Commission to do so. In light of mounting regulatory compliance costs imposed by all levels of government, proposed carbon taxes, and the prospect of US tax reform, the Chamber will launch its own competitiveness assessment of Canada’s business tax system in 2018. The findings of our review will help to shape the priorities for tax reform.
Dates to look out for:
December 15 – The Senate Finance Committee will release its report on the Small Business Tax changes based on the cross-country consultations it undertook during the fall in which many Chambers took an active role.
Sometime before Christmas (our bet is just before Christmas) – The government’s new rules on income sprinkling need to be tabled if the government is to meet its January 1 date for implementation.
March – Budget 2018 will most likely contain draft legislation on passive investment.
Key Messages to MPs
1. Chambers are still very concerned about the potential negative impacts the government’s small business tax changes are likely to have on small business investment and growth. 2. Tax changes should be postponed until their full economic impacts can be taken into account. 3. The government must urgently address the broader issue of the competitiveness of Canada’s tax system. 4. The government should establish a Royal Commission to undertake a comprehensive review of the tax system.
Changes announced by Finance Minister Morneau
1. The Small Business Corporate Tax Rate will be reduced
The government will reduce the federal small business tax rate from its current level of 10.5% to 10% as of January 1, 2018 and 9% as of January 1, 2019. This measure reinstates the gradual rate reduction to 9% announced by the previous government but halted in Budget 2016. The tax rate reduction was included in a Notice of Ways and Means Motion tabled as part of the government’s Economic Update on October 24. This reduction will save companies earning $500,000 in income eligible for the small business deduction $2,500 in 2018 and $7,500 annually from 2019 on. The Canadian Chamber Network has welcomed this move.
2. Higher taxes on Ordinary Dividends
In conjunction with the small business rate reduction, the personal tax rate applied to ordinary (non-eligible) dividends will increase. The purpose is to maintain the integrative nature of the personal and corporate tax systems, ensuring that the aggregate level of tax paid on dividends will remain the same regardless of whether income is earned as an individual or through a corporation. However, this change could result in an overall tax increase for some small business owners, which for some might exceed the savings associated with a reduction in the small business tax rate. Personal tax rates will increase on dividend distributions from earnings that were taxed at a higher rate (like distributions of earnings taxed at a higher small business or manufacturing and processing rate or future distributions of passive investment income). There will be no grandfathering of lower personal dividend tax rates on distributions of these accumulated retained earnings. The Chamber Network has proposed that a grandfathering mechanism be introduced.
3. Rules related to “Income Sprinkling” will be simplified
Widespread and serious concerns were raised during the consultation period with respect to the complex rules the government was proposing to introduce aimed at restricting the payment of income to adult family members unless the amounts were determined to be reasonable. The government also proposed that it would treat some capital gains as ordinary dividends. The government received thousands of submissions detailing concerns about how these proposed rules could result in nearly doubling the tax rate on inter-generational family business transitions or other legitimate business transfers to related parties. The complexity and uncertainty of the proposed changes was also an issue of common concern, as was the likelihood of the proposed measures unleashing an army of CRA tax auditors working on different interpretations of what reasonableness actually means.
In response to the consultations, the government confirmed that the measures related to income sprinkling would be simplified in order to provide greater certainty for family members who contribute to a family business. No further details have been provided since October 16.
There are still many uncertainties about these proposals. What does simplification and clarification mean? What does a reasonable contribution to a business mean? Will the conversion of capital gains to ordinary dividends remain in the simplified legislation? And, when will the simplified draft legislation be released? (The previous version was to come into effect January 1, 2018. The government will need to table its simplified version before then if the effective date is to remain unchanged – Look out for the rule changes to be announced just before Christmas.)
The Chamber Network remains concerned that the changes when they are announced will not take into consideration all of the ways that family members contribute to a small business and that the reasonableness test that will be applied by CRA will still be intrusive and complex. We have called for the government to:
Announce its simplified rules as soon as possible and allow ample time for input from business;
Consider at a minimum an exemption from the rules for spouses; and,
Postpone the implementation of the changes until January 1, 2019 at the very least.
4. Access to the Lifetime Capital Gains Exemption will not be changed
The Finance Minister announced that the government will not proceed with its proposal to restrict access for certain shareholders to the Lifetime Capital Gains Exemption (LCGE). The Chamber Network welcomes this change.
5. Rules governing the Conversion of Capital Gains into Dividends will not be changed
The Finance Minister also announced that the government will not proceed with draft legislation tabled last July that would convert capital gains into taxable dividends. The Chamber Network welcomes this change.
6. The government will work to make it easier and less costly to transfer business to the next generation.
The Chamber welcomes the government’s willingness to improve the tax treatment of intergenerational transfers and looks forward to working with the government to this end.
7. Proposals for the tax treatment of Passive Income will be revised.
The government intends to proceed with proposals to increase tax on corporate passive investments funded from after-tax business earnings, effectively double taxing the eventual distribution of passive investment earnings. However, the government now proposes that the new tax increases will only apply to passive income in excess of an annual threshold of $50,000 and will be applied only on a go-forward basis. It is expected that the draft legislation will be tabled along with the federal 2018 budget.
There are many concerns and uncertainties that still surround this proposal. Such as: Will the threshold apply to individual companies or to groups of companies? What is being grandfathered? Investment assets or retained earnings? Current working capital or future liquid assets from the disposal of other assets? How long will the grandfathering be permitted? Are investments in other companies considered passive investments? The threshold will be insufficient for many small businesses saving to make future investments. There are also serious concerns that the taxation of passive investments will be a disincentive to venture or angel capital.
The Chamber’s position with respect to the government’s new proposals to tax passive income is that:
The $50,000 threshold is inadequate for small businesses that are saving in order to make larger investments in innovations or business growth;
The threshold is too small to provide business owners with long-term earnings security;
The government should not proceed with its passive income rules until a full economic impact assessment has been carried out and an approach has been developed that can ensure there will be no unintended negative consequences to business investment.
At the Canadian Chamber Annual General Meeting (held in September in Fredericton, New Brunswick) Chambers of Commerce and Boards of Trade from across the country met to approve policy resolutions for 2017. The 2017 resolutions were discussed, amended and approved during debate, at which time accredited voting delegates from across the country considered a total of 79 proposals (of which 65 were approved) which had been drafted originally by local Chambers of Commerce, Boards of Trade and National Committees and Task Forces of the Canadian Chamber. In accordance with the by-laws, a majority of two-thirds of the votes cast was necessary to approve each resolution.
These resolutions will be brought to the attention of appropriate federal government officials and other bodies to whom the recommendations are directed. The method of presentation of each item will be determined by a number of factors, including subsequent events and legislation which may affect the subject matter, additional information that may become available, the timing of a presentation, etc.
Throughout the year, members will be updated and advised of the action(s) taken on each of these positions by way of summaries and reports in Canadian Chamber publications.
The Oakville Chamber of Commerce and Canadian Chamber of Commerce welcome the government’s plans to revise its proposed tax reforms and to reduce the small business tax rate as a result of the comments and concerns expressed through the national #ProtectGrowth campaign and in consultations.
“Oakville Chamber members are extremely concerned with the proposed changes by the federal government. On behalf of our members the Chamber met with our local MPs Pam Damoff, MP Oakville North Burlington and John Oliver, MP Oakville. We trust that our voices have been heard and that our local representatives will continue to advocate on behalf of their community on these critical changes that will impact Oakville businesses and the economy” said John Sawyer, President, Oakville Chamber of Commerce.
As Canadians celebrate Small Business Week, Chamber representatives congratulate the thousands of businesspeople who joined the mobilization and made their voices heard on this important issue affecting Canadian workers and employers.
The Oakville Chamber also noted the Minister’s call for further input from Canadian businesses, and intends to continue providing a voice to ensure the tax system is simpler and less of a burden on Canada’s competitiveness.
“It is always more productive when government and business work together. We can only hope the government will listen as we provide advice on those areas where more remains to be done, and that they will propose concrete data to back up their claims. The Canadian Chamber will be working with the Oakville Chamber and other Chambers across the country for suggestions on reforms that can improve the competitiveness of Canada’s tax system. Lowering the small business tax rate is one such measure, but there is still much room for improvement,” Mr. Beatty said. “We must ensure that Canada, and with it Oakville, remain attractive places to do business. Although there is a great deal of work to be done, today’s announcement is a positive first step, but we expect more and we will be vigilant on the next steps,” he concluded.
The government’s proposed tax changes will affect all private business owners
The government has proposed the most significant tax changes we’ve seen in 45 years. These tax changes will affect all private business owners, regardless of their level of income, size of business or conformity with fiscal rules.
We want the government to rethink its proposed tax changes to protect the growth of small businesses across Canada.
We want the government to launch meaningful consultations with the business community to review tax policy without unfairly targeting independent businesses.
We want the government to consider a comprehensive review of the Canadian tax system with a view towards fairness and simplification for all taxpayers and increasing the competitiveness of all businesses.
The Canadian Chamber of Commerce has submitted their policy submission to Finance Canada on the proposed tax changes. It outlines the problems and offers solutions. Read the submission.
Have your say
While the government’s consultation period ended on October 2, you still need to voice your concerns. Call on your MP to ensure no harm is done to small businesses across Canada.
Click hereto write your MP today.When prompted for a password, please enterchamber2017.
Click here to sign our petition.The petition will be sent to ministers Morneau, Chagger, Bains and Monsef.
Please consider adding your voice by shooting a video and sharing it via email@example.com. Videos should tell the story of how proposed changes will impact their business. Watch a sample.
The Oakville Chamber of Commerce’s recommendations for infrastructure spending were supported by the Canadian Chamber network at the policy conference and Annual General Meeting (AGM) held this past weekend in Fredericton, New Brunswick.
The policy resolution, and the recommended actions contained in the resolution, will become one of a number of key priorities identified by the Canadian Chamber. It will form part of the framework for the advocacy efforts undertaken by the organization at the federal level.
The resolution which was submitted to the Canadian Chamber states that more than half of Canada’s public infrastructure, valued at $1.1 trillion, is owned by municipalities and according to the Federation of Canadian Municipalities, one third of municipal infrastructure is reported to be in fair, poor or very poor condition.
“Infrastructure funds need to be allocated effectively and efficiently to the right types of projects. It is vital that investments are made strategically in projects that support the long-term growth of our economy” stated Ken Nevar, Chair of the Board, Oakville Chamber of Commerce.
Mr. Nevar also notes that “While most of our infrastructure challenges are the responsibility of our local government, both the federal and provincial governments have committed renewed investment to tackle our infrastructure needs. Successful distribution of this funding will be achieved by the co-ordination, communication and collaboration of all levels of government.”
According to the Federation of Canadian Municipalities (FCM), every $1 billion invested in infrastructure generates between $1.20 billion and $1.64 billion in real GDP growth; a proven multiplier effect guaranteed to boost the economy.
Similarly, every $1 billion invested in infrastructure creates approximately 16,000 jobs which are supported for one year across multiple sectors.
The resolution prepared by the Oakville Chamber is driven by Chamber member opinion obtained through advocacy surveys which revealed that traffic congestion continues to be an obstacle for success for businesses and that infrastructure priorities need to be transportation related.