On​ ​18​ ​July​ ​2017,​ ​the​ ​federal​ ​Finance​ ​Department​ ​released​ ​a​ ​discussion​ ​document​ ​that​ ​proposed​ ​a tectonic​ ​shift​ ​in​ ​how​ ​small​ ​businesses​ ​would​ ​be​ ​taxed.​ ​A​ ​tax​ ​policy​ ​review​ ​was​ ​not​ ​a​ ​surprise​ ​-​ ​this government​ ​did​ ​indicate​ ​in​ ​their​ ​platform​ ​that​ ​they​ ​would​ ​like​ ​to​ ​take​ ​a​ ​look​ ​at​ ​how​ ​tax​ ​is​ ​administered in​ ​Canada​ ​-​ ​great​ ​idea,​ ​the​ ​business​ ​community​ ​has​ ​been​ ​asking​ ​for​ ​a​ ​review​ ​of​ ​the​ ​tax​ ​system​ ​for​ ​many years.

What​ ​we​ ​were​ ​not​ ​expecting​ ​was​ ​completed​ ​‘draft’​ ​legislation​ ​and​ ​a​ ​scant​ ​75-day​ ​consultation​ ​period, which​ ​began​ ​in​ ​the​ ​dead​ ​of​ ​summer​ ​-​ ​hardly​ ​the​ ​best​ ​time​ ​to​ ​genuinely​ ​engage​ ​stakeholders.​ ​To​ ​be​ ​sure that​ ​the​ ​message​ ​was​ ​crystal​ ​clear,​ ​Finance​ ​Minister​ ​Morneau​ ​has​ ​stated​ ​that​ ​“we​ ​will​ ​not​ ​change​ ​our minds,”​ ​in​ ​reference​ ​to​ ​the​ ​proposals.​ ​Our​ ​members​ ​agree​ ​with​ ​the​ ​minister​ ​that​ ​this​ ​is​ ​a​ ​consultation​ ​in name​ ​only.​ ​For​ ​some​ ​perspective,​ ​the​ ​last​ ​time​ ​changes​ ​this​ ​fundamental​ ​were​ ​made​ ​to​ ​our​ ​tax legislation,​ ​a​ ​Royal​ ​Commission​ ​was​ ​appointed​ ​in​ ​1962,​ ​which​ ​produced​ ​a​ ​six-volume​ ​report​ ​in​ ​1966. Changes​ ​were​ ​implemented​ ​in​ ​1972​ ​-​ ​10​ ​years​ ​after​ ​the​ ​government​ ​first​ ​began​ ​the​ ​process.

The​ ​government’s​ ​discussion​ ​document​ ​and​ ​Minister​ ​Morneau​ ​keep​ ​coming​ ​back​ ​to​ ​the​ ​mantra​ ​of “fairness”.​ ​And​ ​of​ ​course​ ​we​ ​all​ ​agree​ ​that​ ​tax​ ​policy​ ​should​ ​be​ ​fair.​ ​However,​ ​it​ ​is​ ​clear​ ​from​ ​the minister’s​ ​statements​ ​and​ ​actions​ ​that​ ​fairness​ ​-​ ​even​ ​beyond​ ​the​ ​negligible​ ​consultation​ ​period​ ​-​ ​is​ ​not the​ ​government’s​ ​objective​ ​at​ ​all.​ ​That​ ​word​ ​and​ ​all​ ​it​ ​represents​ ​is​ ​rather​ ​being​ ​used​ ​as​ ​a​ ​wedge between​ ​business​ ​owners​ ​and​ ​their​ ​employees.​ ​The​ ​minister​ ​says​ ​he​ ​wants​ ​to​ ​close​ ​“loopholes,”​ ​but when​ ​you​ ​look​ ​a​ ​little​ ​closer​ ​it​ ​is​ ​obvious​ ​that​ ​he​ ​is​ ​actually​ ​referring​ ​to​ ​the​ ​very​ ​structure​ ​of​ ​our corporate​ ​tax​ ​system​ ​that​ ​was​ ​produced​ ​by​ ​a​ ​thoughtful,​ ​10-year​ ​review​ ​and​ ​robust​ ​consultation​ ​in​ ​the 60s​ ​and​ ​70s.​ ​And​ ​what​ ​was​ ​the​ ​fundamental​ ​principle​ ​that​ ​the​ ​Royal​ ​Commission​ ​and​ ​legislators​ ​of​ ​the day​ ​used​ ​to​ ​create​ ​that​ ​very​ ​system?​ ​You​ ​guessed​ ​it​ ​-​ fairness.
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Our​ ​members​ ​believe​ ​the​ ​language​ ​chosen​ ​in​ ​the​ ​discussion​ ​document​ ​portrays​ ​the​ ​government’s​ ​true valuation​ ​of​ ​the​ ​contributions​ ​of​ ​small​ ​business.​ ​Our​ ​members​ ​take​ ​offense​ ​to​ ​the​ ​tone​ ​of​ ​the document,​ ​implying​ ​that​ ​entrepreneurs​ ​avoid​ ​paying​ ​their​ ​“fair​ ​share”​ ​of​ ​tax​ ​due​ ​to​ ​taking​ ​advantage​ ​of loopholes.​ ​To​ ​suggest​ ​that​ ​the​ ​users​ ​of​ ​the​ ​system​ ​are​ ​avoiding​ ​paying​ ​their​ ​fair​ ​share​ ​is,​ ​at​ ​best, disingenuous​ ​-​ ​politics​ ​at​ ​its​ ​worst.
The​ ​federal​ ​government​ ​asserts​ ​that​ ​they​ ​value​ ​the​ ​contribution​ ​that​ ​small​ ​businesses​ ​and entrepreneurs​ ​make​ ​to​ ​the​ ​Canadian​ ​economy.​ ​However,​ ​this​ ​appears​ ​to​ ​be​ ​quite​ ​literally​ ​untrue​ ​given the​ ​lack​ ​of​ ​credit​ ​attributed​ ​to​ ​the​ ​risk​ ​entrepreneurs​ ​assume​ ​when​ ​starting​ ​a​ ​business​ ​as​ ​well​ ​as​ ​the financial​ ​disadvantages​ ​of​ ​owning​ ​a​ ​business.​ ​These​ ​include​ ​employer-contributed​ ​pension​ ​plan,​ ​Canada Pension​ ​Plan​ ​benefits,​ ​employer-contributed​ ​health​ ​or​ ​dental​ ​benefits,​ ​maternity​ ​leave,​ ​vacation​ ​pay, sick​ ​time,​ ​and​ ​the​ ​Employment​ ​Insurance​ ​safety​ ​net.

Perhaps​ ​even​ ​more​ ​telling​ ​is​ ​the​ ​information​ ​not​ ​included​ ​in​ ​the​ ​document.​ ​Has​ ​an​ ​economic​ ​impact study​ ​been​ ​conducted​ ​on​ ​the​ ​proposed​ ​changes?​ ​Has​ ​government​ ​evaluated​ ​the​ ​increased​ ​compliance burden​ ​and​ ​financial​ ​cost​ ​to​ ​small​ ​businesses?​ ​Has​ ​government​ ​evaluated​ ​the​ ​increased​ ​cost​ ​and administration​ ​for​ ​CRA?​ ​How​ ​will​ ​the​ ​proposed​ ​changes​ ​be​ ​managed?​ ​Some​ ​of​ ​the​ ​language​ ​is​ ​vague and​ ​subject​ ​to​ ​interpretation.​ ​For​ ​example,​ ​implementing​ ​a​ ​“reasonableness”​ ​test.​ ​​ ​Has​ ​the​ ​benefit​ ​to the​ ​Canadian​ ​taxpayer​ ​been​ ​evaluated​ ​against​ ​the​ ​potential​ ​job​ ​loss​ ​and​ ​business​ ​failures​ ​this​ ​will​ ​result in​ ​once​ ​these​ ​measures​ ​are​ ​implemented? 

When​ ​businesses​ ​lose,​ ​so​ ​does​ ​the​ ​middle​ ​class.​ ​Business​ ​owners​ ​that​ ​are​ ​affected​ ​by​ ​these​ ​changes​ ​will, quite​ ​logically,​ ​take​ ​steps​ ​to​ ​protect​ ​their​ ​livelihood,​ ​their​ ​retirement,​ ​their​ ​rainy​ ​day​ ​fund.​ ​This​ ​will mean​ ​fewer​ ​jobs,​ ​fewer​ ​hours​ ​for​ ​employees,​ ​less​ ​disposable​ ​income​ ​for​ ​charities​ ​and​ ​community organizations​ ​-​ ​putting​ ​further​ ​pressure​ ​on​ ​the​ ​country’s​ ​social​ ​safety​ ​nets.​ ​Small​ ​business​ ​owners​ ​are the​ ​engines​ ​of​ ​our​ ​communities​ ​-​ ​these​ ​proposed​ ​changes​ ​will​ ​hurt​ ​their​ ​ability​ ​to​ ​contribute​ ​and disincentivize​ ​the​ ​next​ ​generation​ ​of​ ​entrepreneurs​ ​-​ ​not​ ​a​ ​“fair”​ ​outcome​ ​for​ ​anyone.

Is​ ​the​ ​system​ ​as​ ​it​ ​is​ ​currently​ ​designed​ ​perfect?​ ​Unlikely.​ ​Are​ ​there​ ​provisions​ ​in​ ​the​ ​current​ ​set​ ​of​ ​tax structures​ ​that​ ​could​ ​be​ ​improved​ ​upon?​ ​Probably.​ ​Should​ ​we​ ​continue​ ​to​ ​encourage​ ​those​ ​willing​ ​to take​ ​risks​ ​to​ ​create​ ​jobs​ ​in​ ​our​ ​economy?​ ​Absolutely!​ ​We​ ​need​ ​to​ ​be​ ​careful​ ​that​ ​in​ ​the​ ​politically popular​ ​hunt​ ​to​ ​stamp​ ​out​ ​the​ ​advantages​ ​of​ ​the​ ​“wealthy”​ ​we​ ​don’t​ ​irreparably​ ​harm​ ​the​ ​imperfect​ ​but relatively​ ​competitive​ ​system​ ​we​ ​currently​ ​have.​ ​If​ ​the​ ​purpose​ ​of​ ​these​ ​changes​ ​are​ ​to​ ​provide “fairness”​ ​to​ ​the​ ​middle​ ​class,​ ​don’t​ ​forget​ ​that​ ​the​ ​vast​ ​majority​ ​of​ ​small​ ​business​ ​owners​ ​fall​ ​into​ ​this category.

Krista Ross is CEO of the Fredericton Chamber of Commerce. With more than 950 members, the Fredericton Chamber of Commerce is one of Atlantic Canada’s largest chambers of commerce. A dynamic business organization, the Fredericton Chamber of Commerce is actively engaged in policy development that affects the competitiveness of our members and of the Canadian business environment. It’s vision is Community Prosperity Through Business.