Are federal tax changes fair to small business?

Derek Shevkenek - Oct 03, 2017

“Justin Trudeau’s got a big job to do! He doesn’t just take selfies every day!” While passing by the door to our daughters’ room, my wife had just overheard one of them issue a passionate defence of the Prime Minister. Turns out our 10 year old son was coaching his younger sisters in the art of debate, where you learn to argue for or against an issue.

Our boys have been involved with debate for a few years now, and some people joke this could backfire against us as parents. Some people think the proposed tax changes for incorporated businesses and professionals by the Federal Government, “to improve the fairness of Canada’s tax system” as the Department of Finance puts it, could backfire.
During a Sept. 7 town hall meeting in Kelowna BC, Justin Trudeau strongly emphasized, “Let me be absolutely clear. There’s nothing in these proposals that’s targeting small middle-class businesses.” And on the Sept. 10 CTV Question Period, Finance Minister Bill Morneau said, “This isn’t about small business.”
On Sept. 13, the NSBA hosted a lunch with guest speaker, Michael Gorniak, Partner at local accounting firm, Thomson Jaspar. He presented the talk “Saving Small Business in Canada – How Proposed Federal Tax Changes are Risking Your Livelihood.” A website video states they believe “this will have a profoundly negative impact on small business owners across the country,” and encourage a call to action. Oct. 2 is the deadline.
Here’s one question at the heart of this matter: Is it fair for incorporated business owners and professionals to be treated similar to employees, when business owners take-on much more risk than employees?
It’s like the difference between stocks and GICs in the investment world – they are certainly not treated the same from a tax perspective. Buying stocks is in fact buying into businesses, where future returns are not guaranteed, and carry more risk than simply lending money to financial institutions through GICs.
If and when profit is realized from stock dividends and/or capital gains, taxes are much lower compared to interest on a GIC that’s taxed as regular income.
Whether you are for or against selfies or these tax changes, if you’re an incorporated small business owner or professional, be sure to talk to your tax accountant soon.
Inquiry welcome at Opinions are those of Derek Shevkenek and may not reflect those of BMO Nesbitt Burns Inc. The information and opinions contained herein have been compiled from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. BMO Nesbitt Burns Inc. is a Member - Canadian Investor Protection Fund. Member of the Investment Industry Regulatory Organization of Canada.