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Proposed tax changes potentially devastating to small business owners in Kimberley

MP urging business owners in the Kootenay-Columbia riding to have their voices heard in Ottawa.
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At a Chamber meeting on Monday, September 11, Kimberley small business owners came together with MP Wayne Stetski and Kenton Lane of BDO Canada in Cranbrook, to discuss the recently proposed tax changes and the potential affect they could have on businesses in Kimberley.

Finance Minister, Bill Morneau announced back in July that the Liberals want to crack down on Canadian who are using corporations in their tax planning. The claim from the government is that some Canadians are incorporating their business in order to pay less taxes. Canadians were given a 75 day consultation period on this topic.

The government says that the proposed changes are aimed to affect the wealthy, however, many small business owners agree that they will be significantly affected by the potential changes.

There are three main tax-planning tactics that the government is focused on changing:

The first is income sprinkling. Under the current structure, income sprinkling gives business owners the opportunity to split their income with family members in lower tax brackets through salary, wage or dividends. The federal government wants to restrict this ability, and included in the proposal is a reasonableness test that will asses an adult child’s involvement and contributions to the business (both labour and capital) to determine wether that child should be taxed and their normal tax rate, or potentially the highest rate possible.

The second proposed change is to passive income. The government aims to change the current passive income structure in order to ensure that corporations are re-investing into their business rather than taking money from their business to invest in other things, such as stocks or real-estate.

The third proposed change has to do with converting income into capital gains. Currently, corporations are taxed at a lower rate than individuals on business income. The government wants to change the current structure so that incorporated businesses cannot claim regular business income as capital gains.

Stetski says these proposed changes could be detrimental to small businesses across Canada, and that the Liberal Government has simply not taken these folks into consideration.

“Needless to say, our small business and professional communities have been outraged,” said Stetski. “I’m receiving dozens of calls, letters and emails every day concerned about how this tax amendment will affect the very people that the Liberals promised to help: the middle class.

“To add insult to injury, the government gave Canadians 75 days to make their views known, much of which will be taken up during the late summer and beginning of the school year, when people are distracted and able to focus on federal tax policy.”

Stetski is demanding that the consultation period be extended to allow small business owners to have their say. He is asking residents and business owners to write to both Finance Minister Bill Morneau and Prime Minister Justin Trudeau, with their concerns.

“As many collective voices as possible need to be heard in Ottawa,” said Stetski. “The timeframe around consultation significantly concerns small businesses and that needs to be addressed.”

Mike Guarnery, Manager of the Kimberley & District Chamber of Commerce says that the percentage of incorporated businesses in Kimberley is significant enough to ensure the Chamber follows up on the issue within the business community.

“For many years, it has been government policy to encourage the formation of small business, supported by certain tax rules that helped to stimulate the growth of small business and as such the growth of the Canadian economy,” said Guarnery. “These are not ‘loopholes’, but reflect the fact that an owner of a business has taken on risk, foregone benefits that are available to many employees (including government employees), and created jobs that have been a major stimulator of the Canadian economy.”

“They’re [the federal government] targeting the wealthy, [that’s] how they’re marketing this,” said Lane. “I think this is definitely going to affect some wealthy individuals. [However] especially in my practice and in the Kootenays here, a lot of small business owners kind of are the middle class, but they’re also the drivers of the economy here. These changes are disproportionately going to impact these small business owners. It’s making Canada a bit of a less attractive place to do business.

“Business owners are the ones out there taking the risks; there’s a lot that goes into running a business and there needs to be some kind of benefit at the end of the day. A lot of these benefits, in these changes, are going to go away. I think it’s going to make it more difficult to run and benefit from a business at the end of the day.”

Kimberley’s Chamber of Commerce has created an outline with specific points of what businesses owners take on with risk and lack of benefits to make a business successful. If you wish to send a letter to the federal government on behalf of yourself or your business you can find the outline at www.kimberleychamber.com, go to latest news and click on contact information for Finance Minister Bill Morneau.



Corey Bullock

About the Author: Corey Bullock

Corey Bullock is a multimedia journalist and writer who grew up in Burlington, Ontario.
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