A panel of accountants and tax professionals answered business owners' tax questions at a forum on September 7 at the Quality Inn hosted by BDO Canada and the Winkler Chamber of Commerce.
On July 18, the Liberal government released draft legislation aimed at addressing loop holes in the tax code which include halting business owners from lowering their tax rate by sprinkling money to family members (regardless of their involvement in the business either through dividends or by paying them salaries), limiting a corporation’s ability to convert income into capital gains and dividends, and restricting the ability for private corporations to recover taxes through passive investments.
However, Finance Minister Bill Morneau says two-thirds of Canada’s small business owners, including farmers and physicians don’t need to worry about the proposed federal changes to the tax system because they won’t be impacted “at all” by what the Liberals have proposed.
“We have no intention of trying to make it more difficult for the family farm,” said Morneau in an interview with Evan Solomon, host of CTV’s Question Period.
Local business owners in the Pembina Valley met at the Quality Inn on September 7 to discuss what the new changes would mean for them at an event hosted by BDO Canada and the Winkler Chamber of Commerce.
Sean Friesen, a partner at BDO, gave a presentation on some of the proposed changes and what they might mean to a small business owner.
“[The tax changes] are targeting the wealthy ... and we have clients at BDO who I don’t think are in the one per cent at all,” Friesen said. “But it’s going to impact all of them ... there might be one or two [that aren’t affected] but for the most part most of them will be.”
Over the 2 hour presentation, Sean Friesen and a panel of accountants and tax experts tried to reiterate how they felt the new tax rules would harm small businesses.
“Right now, if you earn passive income in a corporation you’re actually worse off than if you earn it personally,” Larry Frostiak, a partner at Frostiak and Leslie Chartered Professional Accounting Inc., said. “In Manitoba, you keep 44 cents on the dollar compared to 50 cents. So if I earn interest income in a corporation I pay 50 cents on the interest and then the government will refund part of that tax because it recognizes the shareholder has to pay a dividend and when all is said and done the shareholder keeps 44 cents on the dollar ... If I earn that personally I keep 50 cents.”
The panel suggested that business owners send personal messages to their MPs as well as the Finance Minister addressing their displeasure with the tax code changes. One business owner asked why BDO didn’t write up one concise letter and have everyone sign it.
“I know every firm is going to write a letter ... what I think is going to have the most meat, the most value, is [a letter] coming from the private owners themselves,” Sean Friesen said. “I don’t think the Liberals like professionals too much and I think a lot of this legislation is aimed at professionals like doctors, accountants, lawyers ... I don’t think [a single letter with signatures] will have enough meat on the emotional side of it.”
“Winkler is built on small business ... I would not be able to be serving the City of Winkler for the last 11 years had it not been for the successful business that I’m living off of,” City of Winkler Mayor, Martin Harder, said. “So what are [the Liberals] trying to do? Are [the Liberals] trying to kill small business? Are they trying to kill communities?”
“I don’t think the voters, and I’m talking about our employees, I don’t know if they understand,” Denis Kehler, owner of SolutionsIT said. “I think they see it as, ‘finally, these tax cheats are getting what they deserve’ ... is there a way to come up with an explanation that [workers] understand?”
“I’m an employee and this scares me,” Jean Thiessen, a worker who attended the forum, said. “Yes this is going to affect me... I don’t want to lose my job.”
Some of the business owners recommended starting a social media initiative to try and get “common people” to understand how changes to the tax code will affect them.
“In my experience, if we’ve got to get a message to our employees it’s got to be really really simple,” Dennis Kehler said. “If I want to explain it to my employees, I want to tell them that the new tax legislation is making things extremely difficult.”
“We talk raises, and bonuses, and new jobs, and that’s it,” Henry Siemens, Winkler City Councillor, said. “Because ultimately, that’s what it comes down to.”
Morneau said that while the government will look at the potential unintended consequences being raised, two-thirds of small business owners in Canada that earn $73,000 per year or less won’t be impacted “at all” by the tax changes.
The government says the most impact will be felt by those business owners who are making $150,000 a year or more, or those who have money to tuck away after contributing the annual maximum to RRSPs and TFSAs
The federal government is now in a 75-day consultation window and will be soliciting feedback from people on its proposal until Oct. 2.