On July 18th, 2017, the Federal Department of Finance launched a public consultation on a significant and controversial set of proposals to change how private corporations are taxed.

Soon after the launch of the consultation period, the Chamber receiving strong negative feedback on the potential impact of the proposals from our members. This was despite the complexity of the tax code and proposals making the issue inaccessible for many of our members.

We’ve previously published a blog explaining the changes, media coverage, and more recently have joined the Canadian Chamber of Commerce and over 35 organizations in joining the Coalition for Small Business Tax Fairness.

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On September 11th, 2017, Hamilton Members Of Parliament, Bob Bratina and Filomena Tassi hosted a business roundtable at the Stoney Creek Municipal Heritage Centre to collect feedback. We’d like to thank them for the opportunity and willingness to listen to a considerable number of businesses for several hours. Copied below are remarks from our CEO Keanin Loomis:

Copied below are remarks from our CEO Keanin Loomis:

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In my four years at the Hamilton Chamber, I have yet to see a proposal that has caused a similar degree of criticism amongst businesses.
Accountants, lawyers, engineers, doctors, farmers, small & medium business owners, regular Canadians like those here tonight – these proposals have raised the ire of almost the entire professional class of Canada.

Today I am speaking today on behalf of not just our 1,000 members, but the several hundred thousand businesses within the “Coalition for Small Business Tax Fairness,” led by the Canadian Chamber of Commerce and over 35 other associations. It’s quite an impressive feat, actually, to have all these groups aligned around this issue, though it doesn’t auger well for you in 2019.

I’m not an accountant and I don’t employ these provisions in my own tax planning, so I will avoid litigating the fine print within Department of Finance’s proposals addressing income splitting, capital gain exemptions and investment of passive income. For that, you have the feedback from the Coalition and many, many, many tax professionals across the county.

While the Government’s purported aim was to scale back the utilization of loopholes by very high-income individuals, the proposals as presented today apply to every single private corporation in Canada and have generated a variety of scenarios that will cause a significant financial impact on small businesses and professionals.
I hope I can paint a picture of the day to day realities and importance of small businesses to our communities and millions of jobs in Canada.

Small Businesses aren’t faring that well.

Small businesses account for 97.9 percent of all firms in Canada and proportionally play a large role in net job creation. While Canada’s economy is on a path of recovery, the confidence isn’t shared by all our members.

Recent releases by the Bank of Canada Business Confidence Index and a similar index recorded by the Ontario Chamber of Commerce have shown an alarming decline in businesses investment intentions and confidence in revenue growth over the next 12 months.

Survival rates for small and medium-sized businesses in Canada decline over time. About 85 per cent of businesses that enter the marketplace survive one full year, 70 per cent survive for two years, and 51 per cent survive for five years. Something we observe on annually as a Chamber of Commerce, losing many members each year through bankruptcy and exits.

At a time when the private sector is being counted on to grow a stagnant economy, starting a business now is more perilous than it ever has been.
In the early 1980s, the entry rate—the number of new companies divided by the total business population—was about 25%, according to a 2014 study by StatsCan. That rate is only around 13% now, despite promising growth in the tech and services sectors.
It’s becoming more and more difficult to start up and operate a business in Canada. That’s because…

Cumulative Regulatory burden

…our investigations have directly linked these challenges to an ever-growing cumulative regulatory burden for businesses over the last decade. This can roughly be described as layers and layers of Provincial and Federal legislative changes being put on top of each other without any coordination or concern for the overall impact to the business community.

As a result, declining bottom lines have been experienced across all sectors.

While ministries, both provincial and federal, might independently see merit in their respective proposals and think the increased burden is but a blip, a small business owner has to manage all of them concurrently.

In Ontario it’s escalating electricity prices, CPP and EI premiums, the introduction of the new carbon tax and of course the recent Bill 148 that we’re dealing with, which will usher in a sharp increase in minimum wage and labour protections.
This is all happening at the same time as the increased instability of the American market and NAFTA negotiations, which are also creating consternation for a highly leveraged community like ours.

While Capitals Gains and Income Investment Exemptions and Income Splitting opportunities are being suggested as an “unfair” tax advantage, they are not just significant mechanisms to incentivize the creation, valuation, growth and succession planning of businesses in our community, but they also help businesses weather difficult times.

These tax exemptions are a critical option for building emergency funds. The external risks for our members range from being in a slow-growth era, to exporters needing to diversify due to President Trump’s flirtation with protectionism, to brick and mortar establishments facing the impacts of climate change.

Recommendation:

As an organization that values evidence-based policy-making and constructive engagement with Government, we generally spend the last part of our presentations on recommendations and amendments to proposals. However, today I find myself agreeing with the Coalition and Chambers across Canada in asking that you not move forward with these proposals. Period.

The $250 million that the government expects to bring in from these proposals is not worth it and will be difficult for the Liberals to defend in the next election, especially when you’ve lost the support of Canada’s entire professional class.

It may cost CRA $250 million to enforce these new rules.

And regardless, the increased complexity to the tax code will cost businesses far more than $250 million to bring themselves into compliance, yet another new burden to them.
Instead, the business community and tax professionals are ready to meet with you and your officials to offer our support and ideas for measures to address any shortcomings in tax policy affecting private corporations. Why not start by talking about the Liberal election promise to decrease the small business tax rate from 10.5% to 9%?

A proper discussion and meaningful consultation could uncover and get to an accurate definition of what the government’s definition of “abuse” of the tax system should reasonably be.
It would allow an honest debate and a thorough examination of what “tax fairness” means without pitting Canadians against each other. It would allow us to examine the utility of a complex regime of boutique tax credits that have been introduced over the last few decades.

We strongly stand behind the legitimate tax incentives – incentives that have been encouraged by provincial and federal governments in the past – that recognize the risks inherent in running a small business and the challenges faced by entrepreneurs.

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For more information, please contact: Huzaifa Saeed | Policy & Research Analyst | Hamilton Chamber of Commerce | t:905-522-1151 ext: 230 | e: h.saeed@hamiltonchamber.ca

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