Red Deer-Mountain View MP Earl Dreeshen met with about 30 people at the Olds Legion hall Wednesday (Aug. 23) for a 90-minute discussion of how proposed tax changes by the Liberal government could affect them.
The consensus of the crowd -- and Dreeshen -- is that the changes amount to a tax grab that will hurt businesses far more than employees realize and the Liberal government knows, or is allegedly letting on.
They said the changes amount to a disincentive for people to create and run small businesses and pass them on to their children ñ and that includes farms and ranches.
Those in the crowd included accountants, businesspeople, farmers and a couple of doctors.
Specifically, according to Finance Minister Bill Morneau, the goal is to close "loopholes" that he says enable wealthy Canadians to pay taxes at lower rates than they otherwise would have.
That includes people who incorporate themselves, then draw income from their businesses or farms by paying lower rates of tax that are allowed under incorporation.
In general, Dreeshen and accountants say, the federal government wants to eliminate or drastically change the following:
Income sprinkling, whereby a business owner pays family members a salary or dividend in order to cut the business's total tax burden.
Passive investment retention, under which a business owner invests income for reasons other than immediate reinvestment into the business. According to those attending the Aug. 23 meeting that can include taking income from the business as a source of retirement income.
Income conversion to capital gains, which, according to critics, is essentially declaring income in a way that creates a lower tax burden.
Dreeshen was asked what can be done to solve the problem. He urged those in the crowd to air their concerns ñ via social media and by writing letters or making comments on the appropriate federal government websites.
Dreeshen said he and his fellow Conservative members of Parliament will raise the issue as much as they can as well.
However, he noted there's not much time. The period for comment on this matter ends on Oct. 2 and the federal Parliament does not reconvene after its summer break until Sept. 18.
One accountant attending the roundtable said she was told by federal officials that the purpose of the changes was to close loopholes that allow "richer" Canadians to pay comparatively lower taxes than low- or middle- income Canadians.
But she said after reviewing the info, her conclusion was the real goal is simply to obtain more revenue for the federal government.
Local lawyer and Business Attraction and Expansion Committee chair Terry Cody said in his view, the federal government cynically announced the changes in the middle of summer (July 18) knowing most Canadians have other things on their minds at that time and won't pay much attention to things like this until the fall, when it will be too late to mount much opposition to them.
"You look at it superficially and go, ëoh, well these are just simply some minor changes,' but as the business associations have said, these are the biggest changes that have happened in the last 50 years," Dreeshen told reporters.
"As we hear more and more as we do the discussions, we find out that it's more draconian than we first thought," Dreeshen added. "So (it's) very important that we hear what people have to say and that we get this back to Ottawa quickly and that people realize it's important their voices are heard and they talk to the Finance Department as well."
According to a Canadian government website, as of 2015, 70.5 per cent of Canadians were employed by small businesses.
Dreeshen noted most people are employed by that sector.
"We have to make sure that in these next five weeks that we're out there talking to different groups and organizations, letting them approach the (news) media with their knowledge about what is taking place and moving on from there.
"Canada is run by small business and small entrepreneurs and you know, so many people, that's where they get their paycheques from and they don't realize just how much they will be affected because of the changes that are presented," he said.
"I think this is some of the frustration that we heard as well: that things are not going well. And if you have five or six employees ñ they're good employees ñ you're going to do all you can to try and keep them.
"But if all of a sudden your margins are being squeezed, that you have to make decisions, and those decisions are going to affect the people who are working for you," Dreeshen added.
"This is going to have a very drastic effect on income for the individual businesses and farmers because of changes to the way that income from a company can be spread among family members to reduce your tax income," said Cody.
"Effectively, if these changes that we're hearing about come through, there'll be no benefit at all to income splitting. So effectively, you'll be taxed at the highest rate of income for all your income instead of being able to spread that out among your family.
"(That) wouldn't be so bad except that a lot of these people who are earning these incomes ñ these businesses that are earning these incomes ñ were created by people taking great risk with their own personal finances ñ putting up their homes, their livelihoods, everything. And there's no compensation for that, unless the company continues to grow.
"And if you talk to any banker, they'll be happy to tell you that, on average, 90 per cent of small businesses fail in the first year. So that's a pretty high risk rate to not get any benefit at all," he said.
Cody said business owners who planned to live off income accumulated through their businesses as they retire would be hurt too.
"With these laws, that's no longer the case, because you'll be taxed at the highest possible rate the moment you start taking money out of your corporation and you aren't doing active work in that corporation. So once you retire, it becomes passive income and passive income will be taxed at the highest amount," Cody said.
"Not to mention the fact that on a go-forward basis, if you think that you will do this and you understand you will pay a higher tax down the road, the government is apparently proposing as well that any money that you don't take out this year for personal income will be taxed at the highest rate within the company even as if you had," he added.
Olds & District Chamber of Commerce president Ben Stone was also disappointed with the proposed changes.
"It seems as though they have been introduced without any discussion with accountants, tax lawyers, small- and medium-sized business owners, and various other stakeholders," Stone said.
"An extremely frustrating aspect of this situation is that many people have put both time and money into organizing their financial affairs in a way that was both legal and appropriate, and now the government is looking at coming back to them and saying that they are in the wrong.
"In doing so, the government is going to cast a significant cloud over the future retirement of these individuals ñ something they have spent a large portion of their lives planning for.
"At this point, it is hard to see who will benefit from this proposal, apart from the government that is looking to be re-elected, and the new employees that will be required to process the additional paperwork," he added.
Local restaurant owner Craig Sutherland delivered one of the most passionate criticisms of the proposed changes.
"This has the potential to take away everything so far as my entire plan for retirement ñ for every businessperson's ñ for having my kids take over the companies and grow them even more," he said during an interview afterward.
"I won't collect CPP (Canada Pension Plan) because I can't, because I'm a businessman, I'm incorporated. That money theoretically speaking, should help me in my retirement so I don't have to go to the government for a handout.
"So I'm getting it all ways. I'm not going to be able to go to the government for any money and I'm sure as hell not going to go on welfare, so I can't get money from the government and I don't want money from the government.
"But at the same time, the government's coming to me and going, ëyou know what? I know your margins are only this much but we want as much as we can get.'
"You're penalizing me for being moderately successful. I'm not making millions; I'm lucky if I'm making thousands, and that's my problem."
Representatives of the federal Finance Department were contacted for comment on the concerns raised by those attending the roundtable. However, they had not provided their response by press time.
"You look at it superficially and go, 'oh, well these are just simply some minor changes,' but as the business associations have said, these are the biggest changes that have happened in the last 50 years."EARL DREESHEN RED DEER-MOUNTAIN VIEW MP
