Small business owners and tax experts are meeting the Liberals’ tax reforms with mixed reactions.
On Monday, the Trudeau government announced a series of changes to a plan originally designed to limit tax loopholes for small business owners. The major change includes a tax reduction from 10.5 percent to nine per cent by 2019.
The change comes after weeks of public scrutiny. Ottawa says it wanted to “simplify” the changes, and still aims to make sure tax loopholes aren’t used to the advantage of the wealthy.
“This is good news,” said Dan Kelly, president of the Canadian Federation of Independent Business said during CTV’s Power Play. “This is hundreds of millions of dollars in tax reductions for small business owners. That’s nothing to sneeze at.”
But with more changes expected in the coming days, Kelly reserved a complete judgement.
“It’s only when we review the sum total of the changes that we’re going to be able to review the net effect on small business owners across Canada,” he said. “We’re going to be parsing through this pretty carefully to determine where the landmines are.”
Marvin Ryder, associate professor with the McMaster University DeGroote School of Business, agrees with Kelly that while the changes announced Monday are good for small businesses, there is still plenty of time for the full scope of the tax reforms to frustrate these companies.
“This is a softening up, because later this week they’re going to tell you small businesses didn’t get everything they wanted,” he said.
In speaking with CTV News on Monday, Don Paton, owner and founder of Ontario Crane Service in Hamilton, Ont., said he was surprised and pleased by the changes. Paton says the reduced tax rate will save the average small business around $1,500, while the larger ones could save $8,000.
“It seems the public backlash over proposed changes to small businesses probably helped them get back on track,” he said.
When the government released its initial tax proposal over the summer, Paton sent emails to his local MP and to Finance Minister Bill Morneau to voice his concern with the changes.
“It sounded like they were trying pit the general public against the small business owners,” he said.
Kelly and the CFIB are concerned over the Liberals’ decision to go forward with provisions against income sprinkling -- where business owners can split their income among family members and lower their income tax rate by paying them salaries, wages or dividends -- with the exception of business owners who can prove that they are splitting their income with family members who “meaningfully contribute” to the business.
“We are worried that the income sprinkling changes will keep the benefits of business ownership out of the hands of many spouses who participate in more informal ways in the business – particularly women,” Kelly said in a news release.
Paton, on the other hand, agrees with the government’s decision to limit income sprinkling.
“That is maybe an unfair advantage for small business owners,” he said. “To be able to sprinkle income around kids to avoid paying taxes, maybe that is a bit too much.”
Armando Minicucci, a tax specialist with the accounting and tax firm Grant Thornton, said the changes came as a bit of surprise. He said that although the reduced tax rate would help a business buy new equipment or re-invest, he’s undecided whether the changes go far enough.
“Is it what we’re looking for today? I’m not sure,” Minicucci told CTV News. “I’m not sure whether or not it’s accomplishing what most small businesses are looking for. They’re looking for certainty with respect to their overall taxation of their private corporation structure.”
