By Dan Kelly
Published in the Financial Post January 9, 2018
There is potential for progress on a few files, but small firms face more obstacles than encouragement from their governments: Comment
At the start of the new year, you can forgive business owners for feeling a little beaten down.
Across the country, 2017 was an unusually tough year. Businesses in several provinces were faced with the spectre of minimum wage increases. Many municipalities imposed giant property-tax hikes on commercial buildings. The good news about free trade with Europe, and within Canada, was tempered by political uncertainty about our biggest trade agreement, NAFTA.
I describe 2017 as the year many of our governments began to drop any pretense about caring for small business. We spent much of the last half of the year battling the federal government’s sweeping tax reform proposals and the associated rhetoric accusing small business owners of being tax cheats.
So what’s in store for 2018 for small business owners?
Despite some early positive news about a falling unemployment rate, the feeling is already being reinforced that some governments just don’t understand (or much care for) small business, in such areas as:
Minimum wage. 2018 started with a 20 per cent hike in Ontario’s minimum wage. When businesses started to make the tough choices to protect jobs by trimming benefits, Premier Kathleen Wynne offered no understanding or praise, but accused entrepreneurs of “bullying” employees. Sadly, this file is not finished or confined to Ontario. Alberta’s minimum wage will hit $15/hour in the fall, Ontario will follow with another hike in 2019, and B.C. is currently working out its timeframe to do the same.
Sharing business income with family members. While the federal government began to recognize the problem they created with small business tax reform last year, 2018 started with a confusing set of new rules governing how family businesses can share income. These rules were announced just before Christmas and I don’t believe a single entrepreneur in Canada currently understands what they are now expected to do. Only now are tax professionals beginning to sort out what structural changes family businesses will need to make.
Passive investment rules, coming soon. Looking ahead a few weeks to the 2018 federal budget, we expect to learn how Ottawa plans to raise taxes on the investments that small firms keep to support their staff and themselves during tough times, or save for their retirement. While we’re pleased the feds will allow firms to claim the small business rate on the first $50,000 in passive investment income, any income above this could be taxed at rates as high as 73 per cent. Expect this to be a big fight in the months ahead.
Payroll taxes going up and up (and up). Instead of keeping a promise to waive Employment Insurance premiums for employers who hire young people, EI rates rose by four cents per $100 in payroll to kick off the year. And next year, Canada Pension Plan premiums will start to increase, and won’t stop until 2025.
Labour reform. At my office, the new year started with a flood of calls from Ontario members about a slew of new labour standards. In addition to the minimum wage hike, the province has implemented a ton of new regulations around sick days, leave, vacations and other employment issues, with little or no time for employers to prepare. Expect other provinces to look to do the same.
New substances to regulate. After a long national discussion over how to regulate and sell it, cannabis will be legal this summer. While it is positive news that some provinces have worked to ensure the private sector has a role in the new market, others have not. Workplaces will need to consider how to deal with employment issues around recreational cannabis.
Competition from America. Just before the holidays, President Trump signed into law the biggest tax reform in decades. A huge cut to the corporate tax rate may entice some Canadian firms to consider locating to the U.S., while others will face stiffer competition from U.S. companies with lower cost and tax structures.
NAFTA and international trade. In the months ahead, I hope small firms will mine the opportunities afforded to them in the terrific new CETA agreement with the European Union. But NAFTA uncertainty is an even larger story and the consequences for small business could be serious. There was some good news last year, as the parties agreed to include a chapter on SMEs in the new accord, but that’s not a guarantee that the negotiations won’t hurt businesses who trade across the border.
Borrowing to get more expensive. Economists expect the Bank of Canada to raise interest rates at least once this year, possibly very soon. In sectors where cash flow varies from season to season, many businesses rely on lines of credit to build up their inventory, and those lines of credit are going to get more expensive.
Blurring provincial borders. The Gérard Comeau case, involving a New Brunswick man who had the audacity to buy cheap beer in Quebec and to bring it home, is set for a decision at the Supreme Court this year (editor’s note: CFIB is an intervenor in this case). If the justices go the right way, small businesses could have an easier time doing business with partners in other provinces, helped by the excellent new Canadian Free Trade Agreement.
Corporate tax relief. After the business community fought back against the federal government’s proposed reforms, the Finance Minister at last reinstated a promise and the small business tax rate went down on Jan. 1, to 10 per cent from 10.5 per cent. It will go down again next year, to nine per cent. This is welcome news for firms lucky enough to be profitable. Some provinces, such as Ontario, are doing the same. Sadly, cuts to corporate income tax appear to be more of an apology than a strategy on the part of many governments.
Carbon taxation or pricing. In many provinces, 2018 was the first year of a five-year plan to impose taxes on carbon. While some provinces are using the new revenue to lower taxes in other areas, for most firms, this will amount to another tax hike on top of the many other rates and charges on the rise in 2018.
Looking at the list above, while there is potential for progress on a few files, small firms are facing more obstacles than encouragement from their governments. I’m glad I had a few days of R&R over the holidays – it looks like the boxing gloves will be back on in 2018. Who’s with me?
Dan Kelly is president of the Canadian Federation of Independent Business and lead spokesman and advocate for the views of CFIB’s 109,000 small and medium-sized member businesses across Canada.
This story was originally published in the Financial Post.