What is happening to small business owners as a result of the new tax changes in Canada recently is no game and definitely no laughing matter.
The truth is that despite the lowering of the corporate tax rate in the next couple years from 10.5 to 9 per cent, small business owners are getting clobbered by the proposed changes. Here are five examples of how business owners are getting swamped by the current government's proposed tax changes:
1. Income splitting - Instead of stopping income splitting, the government should be allowing this for all families whether they own a business or not.
For many years when my wife stayed home to raise our kids or had a part time job in family counselling, I would split my income from my business with her. Our income for some of those years was much less than average Canadian family income of $76,000.
This splitting enabled our family to pay our bills, reduced our taxes, and for me to work the long hours needed to run our struggling businesses in those years. This splitting may no longer be possible under the changes unless spouses who support their partners in business actively participate in the business.
2. Saving for Retirement - The government has said that it is going to tax money earned on investments by small businesses at a rate of up to 71 per cent.
This means that when small business owners are trying to save for their retirement, they will not be able to accumulate cash or invest money saved in investments that are not directly related to their operations.
How does this make any sense? Small business owners across Canada do not have access to the substantial pension funds that government workers or politicians or even workers in most large businesses have.
These pensions worth $40-50,000 per year can add up to over a million dollars in savings that small business owners need, in order to retire with the same level of comfort that people who never took any financial or business risks are entitled to.
But hey, if small business owners start working with the finance minister's family company, Morneau Shepell, they might just be able to put money away for their pensions like everybody else. Isn't that a conflict of interest?
3. Lack of fair taxes - Perhaps the biggest issue of the new taxes proposed on small business is the lack of focus on large multinational corporations, like banks, mining, manufacturing, and technology companies with offices in Canada but investments outside Canada.
Off-shore investments, head offices in tax-exempt countries, and the ability to pay limited taxes in Canada while taking advantage of the Canadian system, are not accessible to small business owners. Yet a lack of government willingness or capability to ensure these companies pay fair taxes hurts small business.
It's not that small business owners don't want to pay their fair amount of taxes, it's that when we see unfairness in the system that benefits the uber rich, yet focuses on penalizing the small business owners who drive the economy, they get upset.
4. The focus on privately-owned corporations - Many small business owners are encouraged to incorporate, not to avoid paying taxes, but to reduce their liability.
Owning a limited company reduces some of the risks of running a sole proprietorship. The government focus on privately owned corporations may have been intended to increase tax revenues, but overall the complex changes are just one more complicated hoop and stressor that small business owners have to face in their day-to-day lives while trying to run a profitable business and understand an ever-changing economic landscape.
5. CRA focus on employee discounts - The CRA have started to go after employees of small businesses that receive discounts for working in the company.
If I have a small retail store or restaurant and allow my staff to buy something from the business at a discounted price, this benefit is now going to be taxable.
The truth is that most employees of small businesses make much less than the government bureaucrat who has proposed this change.
Small business owners with limited resources and limited income, often don't have much except staff discounts as perks to offer to employees. Taking these discounts away or finding ways to tax them is going to place a complicated burden on small businesses owners who are just trying to be fair to their employees.
If the government continues to clobber small business owners with changes that make working for government agencies so much more appealing than taking the risk of running a business, more of them are going to quit.
Wouldn't it be better to encourage small business ownership than punish it?
Dave Fuller MBA, and business coach is the author of the book Profit Yourself Healthy and has owned his small businesses for 30 years. Email your comments to dave@profityourselfhealthy.com
