Income Tax Changes to Affects Small Businesses and Family Farms

Impact of Tax Changes
While the government says these changes are intended to close loopholes used by the highest-earners to avoid paying their fair share of taxes, these changes will in fact hurt small business owners (a majority of whom are hardworking members of the middle class), their families and their businesses.
The government’s proposed small business tax changes will prevent business owners from investing in their businesses, properly ensuring for stability in leaner times, or saving for retirement.

In short, these changes will hurt the very people the government purports to want to help.

Message on Income Sharing
Members of my family contribute greatly to the success of my business, often supporting my employees and my clients. Arbitrary and overly complex tests will only add more red-tape to my business, and hurt my ability to employ my own family members.

Passive Income Savings
Small business owners do not have easy access to loans and lines of credit in the same way other Canadians do. Passive income acts as a type of insurance against emergencies, unforeseen costs, and allows us to make needed investments into our businesses.

Small businesses also don’t have access to retirement savings afforded to other Canadians through their
employers, so we depend on the value of our businesses to finance our retirements.

Background  Information:
On July 18, 2017 the federal Minister of Finance, Bill Morneau announced that the Government of Canada would begin to review the way in which many Canadians and small business owners are utilizing private corporations as part of their tax planning strategies.  The ultimate goal, according to the Minister, is to close-off what the Government views as loopholes within the tax system that it believes provide unfair advantages to high-income individuals.  For many small business owners like you, however, these changes may place into jeopardy your ability to properly provide for your family’s needs, save for retirement, and reinvest in your business.

Among the Government’s proposed changes, the following two are viewed as the most troubling for
small business owners:

1)      Income sharing among family members (“Income Sprinkling”)
The Government has announced that it intends to make it more difficult for small business owners to share income with members of their family who work in the business. In order to accomplish this goal, the Government is looking at implementing new measures that will restrict the ability of small business owners to shift income by way of wages, salaries or dividends to family members between the ages of 18-24 years’ of age.

The Government has also indicated that it will look to implement new rules or a “test” that will determine whether or not the compensation of an individual family member is “reasonable, based on the family member's contribution of value and financial resources to the private corporation.”

2)      Passive Investment Income
For many small business owners, having the ability to make investments back into their businesses, and to save money for unforeseen events or slowdowns in the economy are critical. Much of this is done by way of retaining a portion of earnings in the business, in order to invest later on. However, proposed changes to the use of “passive income” may make saving and investing much more difficult, as the Government seeks to “neutralize the tax-assisted financial advantages of investing passively through a private corporation.”

Resources:

Canadian Federation of Independent Business (CFIB)

Canadian Chamber of Commerce

CHBA

Media

Outreach to your Member of Parliament:

Members of Parliament (MPs) are still in summer recess and are expected to be working out of their constituency offices until the House of Commons returns to session on its scheduled date of Monday, September 18th. As such, in order to best deliver your concerns to the Government, we recommend that that you meet with your local Member of Parliament concerning the proposed tax policy changes, prior to the MP returning to Ottawa and before the end of the consultation period.

While MPs outside of the Cabinet have limited influence with respect to government policies or programs, they (particularly government MPs) are often strong sounding boards for the Prime Minister and his cabinet as to how Canadians are reacting to certain policy proposals, and can potentially become strong advocates for your concerns if they believe unpopular policies may negatively impact their own political fortunes come the next federal election. Opposition party MPs can also use unpopular policies such as this one as a way to put pressure on the government, and for their own purposes, in advance of an election.

Recommended Messaging

Tips for Writing an Effective Letter to your MP

Custom letters are better than templates:
Template letters are certainly less time consuming to produce than a custom letter. However, Members of Parliament get hundreds, if not thousands of form letters and template based letters a week from various interest groups across the country. The key to a good letter is one that is personalized and has the ability to stand out from the rest, in a way that will resonate with your MP. Your issues are vital to your business and to the well-being of your family, and therefore deserves a letter that will be noticed.

  1. As part of this package we have provided a sample letter (below) from which you can draw your message and style. We strongly encourage that you customize it so that it reflects your voice, style and personal
  2. Insert a line thanking the MP for meeting you (if you met or spoke on the phone) and mention

the day on which you met. This will refresh his/her memory and will remind him/her that you’re
not just another form letter.

  1. Draw on your experiences as a small business owner to illustrate the challenges you face every day.
  2. Talk about how the changes to the way small businesses are taxed will impact your business, family, employees, and the local economy/community.
  3. Be firm but courteous. We want your Member of Parliament to find your input not just insightful, but constructive and
  4. Be sure to send your letter in to Finance Minister, Bill Morneau in order to be part of the official consultation process. You can do so by sending to this address: consultation.fin@canada.ca

Call to Action! What you can do is write your local MP a letter (In our community this is Arnold Viersen) to express your concerns with these changes and their potential impact. See template attached.

You could also contact the Canadian Finance Minister directly here: https://www.fin.gc.ca/admin/contact-eng.asp

Attach a File: