By Dan Kelly
Published in the Financial Post February 21, 2018
Between last year’s tax fight and next year’s CPP hikes, this is the time for the Feds to get fairness right: CFIB
As small business owners are necessarily optimistic by nature, I try to be the same in my work leading Canada’s largest small business advocacy group. And while relations between the nation’s entrepreneurs and the federal government have been strained, at best, over the past few years, no one would be happier than me to see the 2018 federal budget turn a new page.
After an unprecedented outcry from the business community, the government began to recognize the potential harm its proposed tax changes for private corporations would bring. In October, it dropped one of the scariest provisions related to capital gains and reinstated its promise to lower the small business corporate tax rate to nine per cent — a policy endorsed by all major political parties.
It also began to soften its proposal to tax passive investment income at punishing rates. Allowing small firms to keep the status quo on the first $50,000 in annual passive investment income will exempt many of the smallest businesses that use passive income to help grow their businesses or save for a leave or retirement.
But much more remains to be done for budget 2018 to restore the trust of the local dry cleaner, dog groomer or dentist.
The timing of this budget is critical for small business. The minimum wage has increased or will soon increase in many provinces, and Canada Pension Plan premiums are going to go up for five straight years starting in 2019. Taken together with uncertain international trade, new carbon taxes and a complete tax overhaul south of the border, there are serious threats to Canadian businesses’ ability to innovate, compete and hire.
For a government that focuses on fairness in the tax system, it’s only appropriate to treat the people most affected by all these changes — business owners and young workers — fairly. Canada’s job creators need to see some measures that will offset the impact of these changes hitting them all at once.
The impact is already being felt, less than two months into the year. In January, the country lost 88,000 jobs — far outstripping expectations of fewer than 10,000 losses — with Ontario bearing the brunt, especially in part-time jobs. To stanch the bleeding, the government should implement some tools to get young Canadians into the workforce. Now that the federal government has restored one of its major promises to small business owners (the tax rate cut), it is time to reinstate the second: an ‘EI holiday’ for hiring young people. The 2015 Liberal election platform promised to allow firms to hire a young person between ages 18 to 24 without paying any employer EI premiums for the first three years. A similar program in the Chrétien-Martin years was a big winner.
In our pre-budget submission, we also asked that EI premiums, which are disproportionately shouldered by business owners, be generally lowered for small businesses — or split evenly between employers and employees.
The government can also provide relief by encouraging innovation in the private sector. For inspiration, they don’t need to look far: in the United States, firms can now deduct $1 million in investments for new equipment or technology. Announcing a similar deduction – even if phased in over time – would allow Canadian companies to invest in their growth and productivity far more than any government program or super-cluster strategy.
Finally, the tax proposals — hotly debated for months — remain nowhere near ready for prime time. The government rushed implementation of the income-splitting rules for Jan. 1 and virtually no business owner in the country understands what they are supposed to do. We’re asking that they recognize how spouses contribute to a business’ success by allowing them to be exempt from income-splitting rules and delaying the enforcement of the new regime until 2019, as recommended by the Senate Finance Committee.
With respect to the passive investment changes expected in the budget, our first priority is to see government shelve the whole idea. This would properly recognize the serious risks that business owners assume: they often forgo salaries for years, and don’t get to claim EI if things go south. Passive investments are an important shield against such hard times by helping keep firms (and employees’ paycheques) going when money is tight. If government is determined to go ahead, we urge them to raise the threshold from $50,000 to $250,000 to ensure growing and medium-sized firms are not sideswiped in the process.
The relationship between small business and government has been strained over the past eight months, but doesn’t need to be. These good-faith gestures would not only go a long way toward mending those ties and making the tax system fairer, they would also give more young workers a fair shot at taking home their first paycheque. That’s something that all Canadians should be able to get behind.
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.