The federal government should scrap or at least delay plans to amend the Income Tax Act as the proposals risk harming the Canadians these changes are meant to help, the Senate Committee on National Finance said in a report released Wednesday.
The committee’s report is the product of extensive study and cross-Canada consultations with the people who have the most to lose under the proposed changes. This work took place with the endorsement of the federal finance minister.
The majority of senators on the committee believe cancellation is the most prudent course of action. However, committee Deputy Chair Senator André Pratte and Senator Éric Forest disagreed.
As an alternative to cancellation, delaying fiscal reform implementation would also give the government more time to consult with businesses and tax specialists on the details of the changes, once these have been released.
Witnesses described in concrete terms the extent to which some changes would be harmful to them. Proposed restrictions on passive investments, for instance, would discourage business owners from saving for capital investments, economic downturns or even parental leave and retirement.
There is another reason for the government to withdraw or delay its proposals.
Over the past decades, various governments have made incremental changes to the tax system, which has become bloated, complex and cumbersome. The last comprehensive review of the tax system took place in the 1960s; the committee believes it is long past time for the government to take a close look at our existing system.
If the government truly wishes to make meaningful, lasting changes toward a fairer tax system — and maintain Canada’s competitiveness with other countries that have simplified their own tax codes — the committee believes the government must embark on a full review of the tax system.
It would be an ambitious, time-consuming and difficult project. But, done well and with input from Canadians, it would leave a lasting legacy of stability and profitability.
The committee urges the government to embrace this challenge.
Read the report, Fair, Simple and Competitive Taxation: The way forward for Canada
New draft legislation on income sprinkling still raises concerns, says business coalition opposing tax changes
The legislation on income sprinkling released by Finance Minister Bill 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,” said Dan 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 in Canada, 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 visit smallbiztaxfairness.ca.
Minister of Finance Bill Morneau announced a series of revisions to the federal government’s proposed corporate tax changes as well as a reduction to the small business tax rate. This announcement is a significant win for the business community and is a result of the hard work of business owners and chambers from across the country. The fight for tax fairness and our #protectgrowth campaign is not over yet, but keep reading to see what has been accomplished so far.
Small business tax rate reduction:
The small business tax rate will be reduced from 10.5% to 9% by 2019. This was originally part of the Liberal campaign platform, but was postponed indefinitely in Budget 2016. We are pleased to see this planned reduction restored.
Lifetime Capital Gains Exemption (LCGE):
The government had planned to limit access to the LCGE as one of their three major changes to corporate taxation. This would have hurt family businesses by punishing intergenerational transfers. The government has cancelled this proposal and now says there will be no changes to the LCGE. The government has also indicated that it will ensure that the proposed tax reforms do not impede the intergenerational transfer of businesses. They have not yet provided any detail on this yet, but we will be monitoring the issue closely.
The government proposed onerous restrictions on how much family members could be paid. They said anything beyond a “reasonable” salary would be taxed at a much higher rate. The government has softened its approach, indicating that the tax reforms will only impact family members that make no “meaningful contribution” to a business. The government has also said it will simplify restrictions on income splitting. By excluding family members that make “meaningful contributions” to a business from this proposal, the government has taken a step in the right direction, but it is still not clear what exactly a “meaningful contribution” is. We are concerned that government still does not recognize the diverse contributions that family members make to a business.
The government is still moving forward on rules to discourage passive investment income, but they are setting a threshold that will allow $50,000 in income per year to be exempted. That means that $1 million held inside a corporation could earn 5% ($50,000) without being subjected to the new rules. We are still calling for government to completely cancel its proposed restrictions on passive investment income, but this ‘threshold’ is an improvement from the original proposal.
Although the federal government has taken some steps toward tax fairness through its reduction of the small business tax rate and revising its corporate tax proposals, there is more work to be done. The details of the government’s new proposals are still to be seen and the government has not yet conducted fulsome consultations or a comprehensive review of the tax code. That’s why we are calling for a Royal Commission to conduct a full and independent review of the tax system.
We urge you to continue to make your voice heard and contact your MP. Tell them that these revisions are a step in the right direction, but that Canada needs a Royal Commission. Make sure they hear your concerns so that Burlington can remain a fair place to do business. You can reach MP John Oliver here and MP Pam Damoff here.
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.