Yukon’s premier says he agrees the federal government may not be consulting enough with business owners over proposed tax changes.
“Seventy-five days for a review, that might not be enough time,” Sandy Silver said Sept. 26. “You really need to consider the reactions here. I think what we’re hearing is Ottawa’s perception of the rich in this case it might be a little bit distorted. Small businesses with owners who don’t have a government pension, that employ many people, they do make significant contributions to taxes through this employment.”
Silver said the federal government needs to make sure changes – it says are meant to close loopholes in the tax code – don’t unintentionally cause small business owners who aren’t wealthy to suffer.
The federal Liberals have proposed three major changes to the way incorporated businesses are taxed. Ottawa claims the changes are meant improve fairness in the tax system. Business organizations, including the Yukon Chamber of Commerce, say the changes will hurt local small businesses.
Ottawa is proposing more restrictions on income-splitting which allows business owners to reduce their income taxes by transferring business income to family members. The federal government is also suggesting changes to passive investments which allow businesses to hold investments like real estate and stocks in a corporation and pay a lower tax rate.
Lastly, the government is proposing changes to the way income is converted to capital gains.
Federal Finance Minister Bill Morneau announced the proposed changes in July. The 75-day public consultation period is slated to end Oct. 2.
“Just to put it in perspective, the last time the federal government introduced changes of this scope to the small business tax structure they spent two years consulting before they actually implemented the changes,” said Peter Turner, president of the Yukon Chamber of Commerce.
Turner said having the consultation period in the summer made it difficult for small business owners like farmers or placer miners to participate.
“I believe personally that this 75-day period was strategically chosen by the federal government to kind of slip it in under the radar screen,” Turner said.
Turner said the chamber wants a longer consultation period before any changes are considered, if they happen at all.
“Quite frankly the early indications that I’ve seen both from feedback from our membership as well as reading about it myself, it appears to be fundamentally unfair to small businesses.”
Turner denies the tax rules the federal government wants to change are loopholes. Entrepreneurs and their families take risks when they start up a small business, he said. They manage without a guaranteed paycheque or pension or severance that would come from working for a larger business.
“The current tax structure recognizes that’s the case and tries to kind of level the playing field by giving a small business other opportunities to make up for the absence of those,” he said.
Amber Ruddy, the director of territorial affairs for the Canadian Federation of Independent Business, said small businesses rely on passive investments as a way of saving money.
As for dividing income among family members, Ruddy said all family members contribute when new businesses start up.
Ruddy takes issue with the federal government’s suggestion that they should come up with a “reasonableness test” for how businesses are allowed to divide up income among family members.
“I think business owners find that offensive for the Canada Revenue Agency to come in and start determining the worth of the individuals in their workforce,” she said.
“I think we should be able to trust small business owners, they’re 98 per cent of all business and I think the contributions they’re making should be respected not questioned and treated as tax cheats.”
Turner said he believes the territories will be disproportionately impacted compared to the provinces.
“In the North the percentage of all businesses that would fall under the category of small businesses is substantially higher than it is down in the provinces in the South.”
Silver said he will be taking concerns raised by Yukon businesses and to both Morneau and Prime Minister Justin Trudeau at the First Ministers Meeting Oct. 3 in Ottawa.
“We’re encouraging him (Morneau) to listen to the business owners for sure and to be very careful in considering the impacts of these tax changes before making any firm decisions,” Silver said.
It’s not clear how many businesses in the territory are incorporated and large enough to have taken advantage of the laws that the federal government wants to change.
Whitehorse Chamber of Commerce president Rick Karp said “there’s no question” Yukon businesses use those options.
“This will have an impact. Now, what’s the degree of impact we won’t know until the actual legislation is passed.”
The territory’s official Opposition has written to Morneau asking him to cancel the plans.
“Nobody is in favour of tax evasion — but if your government is truly committed to supporting the middle class and growing the economy then we ask you to cancel your tax hike on small businesses and go back to the drawing board,” Yukon Party interim leader Stacey Hassard wrote.
Hassard told the News he thinks the proposed changes will hurt the territory’s economy.
“It’s going to increase the taxes on small businesses so that in the long run is going to hurt the economy. It also discourages people from wanting to be entrepreneurs and to me that’s very concerning.”
For his part, Yukon MP Larry Bagnell said he won’t make up his mind about the proposed tax changes until the government has a final plan.
“The idea is that the minister wants to … have similar levels of taxation inside and outside a corporation. But maybe there’s unintended consequences to that so I want to see what the final proposal looks like.”
Bagnell said he’s heard concerns from local businesses and passed them on to Morneau’s office.
The two chambers are hosting a business tax information session to go over the possible changes Sept. 28 at the Westmark Whitehorse starting at 5:30 p.m.
Contact Ashley Joannou at ashleyj@yukon-news.com