For nearly the entire 48 year history of the Canadian Federation of Independent Business, small business owners have ranked lowering the total tax burden as their No. 1 priority. Many owners of small firms report their success, expansion, innovation and opportunity for job creation are restrained by the new and existing forms of taxes that many governments are introducing or raising.
This year, while there has been progress made in getting the promised (and then cancelled) federal small business corporate rate lowered to nine per cent, and seeing accelerated depreciation of many capital investments, the tax picture is decidedly negative. We need to remember that every Canadian’s take home pay dropped on January 1, 2019 due to a hike in Canada Pension Plan (CPP) premiums. Every Canadian employer saw his or her payroll budget shrink for the same reason. And this will happen again each January 1 for the next four to six years as a result of CPP expansion.
In Saskatchewan, Manitoba, Ontario and New Brunswick, carbon taxes will be introduced and raised each year for a four-year period. This is particularly worrisome and unfair for small firms as new CFIB research shows that nearly 50 per cent of the billions in federal carbon taxes will come directly from SMEs (while they get only seven per cent of the total rebates). Meanwhile, consumers are told they will get rebates larger than the amount they actually pay in carbon taxes and large emitters will get exemptions on much of their carbon creation.
On top of all this, many SMEs will be hit with new taxes on passive investment income in 2019 – part of the harmful small business tax reform package that was rushed in after summer of 2017. This is despite repeated promises that past passive investment income will not be hit by retroactive taxes.
So you can understand why small firms are a bit apprehensive around government budget season, particularly at a time when governments are running massive deficits. Small business owners know that today’s deficits are tomorrow’s taxes.
And given that 2019 is a federal election year, one can expect a variety of pricey new spending program ideas, such as a national pharmacare program, that will need to find a dedicated source of revenue.
CFIB has been busy advocating with both the federal government and opposition parties on small business priorities in advance of the March 19 budget.
A permanent lower EI rate for small business (perhaps on the first $500,000 in payroll) would alleviate some of the CPP payroll tax pressure and allow business owners to invest more in expanding their business, or hiring and training staff. We also want to see government make good on its election promise to introduce an EI holiday for hiring youth. Helping small business owners hire and train young workers by offsetting some of the cost would go a long way to addressing the growing shortage of labour and the 409,000 private sector jobs that went unfilled last quarter.
Nearly three quarters of owners intend to exit their enterprises in the next decade. The vast majority are relying on the sale of their business to fund their retirement, and many would prefer to sell or transfer their operation to a family member. However, under the current rules, business owners are taxed far more heavily when they sell to family than when they sell to a third party. CFIB is urging the government to change the rules so that sales to family members and to third parties are taxed in the same way. Both Liberal MP Emmanuel Dubourg and NDP MP Guy Caron have drafted legislation that could be adopted to make this happen.
CFIB also calls on government to rethink its new passive investment rules and, at minimum, protect past passive investment streams as it promised to do. Providing a full exemption for spouses from the new income sprinkling rules would also help firms reduce their red tape and ensure the many informal roles of family members are respected and valued.
I continue to hear from small business owners across Canada who feel alienated and misunderstood by their government
In addition to announcing new measures to lower the red tape burden facing entrepreneurs, the government should announce a long-term strategy to get top personal income rates below 50 per cent. The long-term consequences of sending more than half of one’s earnings to government can be debilitating on the nation’s work-ethic and entrepreneurial spirit.
And while there are many worthwhile ideas for public spending, small business owners want government to provide us with a pathway back to a balanced budget. Not only is this important to keep future taxes in check, it is critical to ensure we have the capacity to address an economic slowdown or recession.
While some progress has been made on certain important files, I continue to hear from small business owners across Canada who feel alienated and misunderstood by their government. They were made to feel like tax cheats and one-percenters in 2017 when the government introduced its unfair tax changes for small business.
Small business owners will be looking to the 2019 budget a sign of whether the concerns of entrepreneurs are a priority or an afterthought. They’ll also be looking to all parties to see how strongly they are featured in their platforms as we approach the October election. I’m sure hoping they won’t be disappointed!
Dan Kelly is chief executive officer of the Canadian Federation of Independent Business.