Thursday, September 21, 2017

Tax Fair Alternatives to the Undue Assault on the Canadian Economy

The consequences, even if small, may be grave for the Canadian economy if the proposed tax changes go ahead. This is because small businesses (a large number of which are Canadian Controlled Private Corporations) are responsible for contributing upwards of 30 percent to Canadian GDP and accounting for 70 percent of employment in the private labour market. It is likely that they will result in fewer small businesses starting, fewer small businesses surviving, fewer small businesses thriving, fewer small businesses remaining in the family and more Canadians who rely on small businesses being unemployed or under-employed. What's worse, is the changes made will not address the underlying and reasonable reasons a large swath of self-employed people rely on existing business law as it stands in the ways that they do. Nor will it address the more egregious abuses of our tax system and the most severe cases of tax avoidance. Indeed - if tax fairness is the goal, it is difficult to see how the proposed changes will achieve that objective, while it is easy to see how the proposed changes might well result in even lower tax revenues being available to support aggressive growth in public spending.

A good starting point might be to consider whether or not the maximum insurable and maximum pensionable earnings under EI and CPP have kept pace with the needs of the vast majority of the population. I would argue that they have not, and that increasing these amounts (perhaps to cover income up to the 90th percentile) might be the incentive needed to claim a greater share of income earned by a CCPC as personal income. This alone would alleviate some of the incentive to defer taking earnings as personal income at a later date as the amount expected to be paid by either CPP or EI would also be increased. Further this would "level the playing field" between those who are employed by the private sector without defined benefit plans, and those who do participate in those plans.

Similarly, increasing the RRSP contribution limits perhaps upwards of 18 percent of earnings up to 90th percentile would also be helpful. Again, this would reduce the incentive to defer taking money from a CCPC as personal income.

Perhaps it is also time to consider introducing a small business TFSA - where the contribution limits are set to a certain percentage of a small business' revenues to enable small business to continue saving for economic downturns or future expansions.

Lastly, in the interests of "leveling the playing field", it is perhaps time to re-instate income splitting for all Canadian households.

What isn't helpful is the divisive nature of the debate around these changes and the lack of meaningful consultation that takes into consideration the well articulated concerns of business owners, farmers and professionals - many of whom have worked exceptionally hard to be good members of Canadian society and who have paid their fair share to their communities and their employees.

It's time to turn the page on what has been a disastrous start to a much needed conversation on tax reform in this country.

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