Don Paton invests most of his days pricing new jobs around the factories and industrial positions of Hamilton, or in hands-on work making the electrical connections for the cranes his gathering installs and repairs.
The rest of his time he spends at a computer, usually standing administrative work for his business, Ontario Crane Service. But last week he sat down to surrender Bill Morneau, Canada’s finance minister, a piece of his mind.
«To me it’s go for, they’re trying to pit one part of society against the other part. Anybody who owns a problem is a bad person, because they’ve got money in the bank, or they’ve got a rainy day resources,» he says.
His gripe is the federal government’s proposal to close what it awakes tax loopholes that private businesses use. Practices, the government’s literature reveals, used to «gain unfair tax advantages.»
Paton, and a growing number of enterprise owners across the country, disagree.
3 changes considered
Last month, Morneau hurled a 75-day consultation period for three proposed changes:
- The curtailment of «revenues sprinkling,» a method by which business owners shift a portion of revenues to family members, either through salary or dividends.
- The curbing of «cow-like investment income,» which the government describes as the investment of money left-hand in a corporation, for purposes other than to invest directly in growth.
- The conversion of a corporation’s bimonthly income into capital gains, which typically attract a discredit tax rate.
The first two measures are attracting mounting criticism.
Passive investment takings
Money left «passively» invested within the business, Paton maintains, has an important purpose. «They want me to take that cash out of the partnership so they can take more tax off it, and meanwhile if I hit a rough patch or a downturn I’m effective to have to go to the bank and borrow that money and pay interest.»
Left in the obligation, the money is subject to the relatively lower small business tax rate, budgeting Paton to invest a larger sum. But he bridles at the suggestion of unfairness.
If he was an employee, he bottoms out, there would be layers of government protection, including labour laws mandating severance payments, between him and the vocation cycle.
But running his own business, it’s his job to make sure he can still pay his five hands through a downturn. That sheltered investment isn’t necessarily just for his own perks.
In downtown Calgary, David Wallach shares almost identical concerns, although, for the president and majority owner of a real estate services and bosses company, his objections extend to a crackdown on «income sprinkling.»
Sometimes this voices the form of paying salaries to other family members who work for the affair. But the government is also taking aim at the practice of dividend payments to family fellows, something that hits close to home for Wallach.
He owns his adulthood interest in Barclay Street Real Estate through a holding business, the shares of which are divided 50/50 between him and his wife.
In good years — two of the closing four — those shares have paid a dividend. Wallach alleges the money paid to his stay-at-home wife (taxed, but at a lower rate than if the flush all accrued to him) helps to compensate for the risk the whole family has borne into done with his entrepreneurship.
«If, God forbid, I divorced my wife of 33 years tomorrow, the command would say that half this business belongs to her. She stayed cuttingly and raised our three children, she’s participated in the risk, the whole family did. So why shouldn’t she be cough up.»
Wallach also points out that Alberta has been mired in a penetrating economic funk for several years. He’s had to meet payroll from his own keep, he says, «but it’s not my pocket, it’s my family’s pocket.» He’s also, in the past, risked the progenitors home as collateral for a loan to the business. The risk of business, he says, is shared by the kids, and tax law should recognize that.
The Canadian Federation of Unaligned Business, representing more than 100,000 members, says it’s heard mounting dissent concerning the tax changes.
«We’re getting more understanding of what the potential impacts power be, and it’s, I think, much broader than we initially thought ourselves. And I consider this idea that it’s targeting only wealthy individuals or professionals is not sincerely,» says Corinne Pohlmann, senior vice-president of national affairs.
«Colleagues in all types of sectors, and definitely many members who are not considered wealthy, are sheerest concerned about the impacts of this on their businesses.»
Kim Moody, concert-master of Canadian tax advisory at Moodys Gartner Tax Law in Calgary, says the clients he’s briefed be experiencing been horrified. But the issue, he suggests, cuts deeper than hardly tax.
«This is about economics. What the government will do here is silence entrepreneurs who have been the backbone of Canada’s growth … and all in a 75-day consultation aeon, held mainly over the summer, when everyone, including the administration bureaucrats supposedly listening, are on holiday.»