SOUTH DUNDAS — Are those ‘sunny ways’ in Ottawa about to hang small businesses out to dry?
Critics fear so. And the South Dundas Chamber of Commerce has added its voice to a chorus of national concern over the Trudeau government’s intended tax changes for small businesses that happen to be incorporated.
Canada’s business community has been sounding the alarm ever since Finance Minister Bill Morneau announced the upcoming changes that will hike taxes paid by people with shares in private corporations — the way that many small businesses and family firms are often organized.
Also spearheading a letter-writing campaign to local MP Guy Lauzon on the issue, the South Dundas Chamber is warning the local business community, in a recent email, of the implications of Morneau’s moves.
Says the Chamber:
If your business is incorporated, then you could be facing a larger tax bill and big compliance costs from the government’s new proposals to change the way corporations are taxed. Even if you’re not incorporated, these changes will affect businesses in our area and as a community, what affects our fellow business owners influences our bottom line.
Here are three things you need to know about the tax changes proposed by the federal government:
1. Does your business have shareholders who are not active in your business?
Dividends issued to non-active shareholders or shareholders who work in the business but are not active in the core operations of the business are being targeted. The government wants to tax dividends to these shareholders at their highest tax rate. In addition to this, the government wants to eliminate their ability to use their lifetime capital gains exemptions on any eventual sale of the business.
2. Do you invest the profits from your business?
The federal government is proposing to tax investment income inside a corporation at an effective rate in excess of 70%. A common retirement planning strategy for business owners has always been to leave excess business earnings in the corporation to defer taxes and pay a lower tax rate when those funds are pulled out at retirement. This would be similar to employees who have pension plans, which is that they are not taxed on those retirement contributions until they are used in retirement. The changes to the tax rules will push business owners to withdraw excess earnings and be taxed at higher personal tax rates.
3. Do you want to pass your business on to your children?
Tough new rules make it difficult for younger kids to get the capital gains exemption. In addition, the cost to pass your business on to your children could be substantially greater than the cost to an arm’s length person to purchase your business.
Small and medium-sized businesses (SMEs) are the engine of the Canadian economy – estimates range from 85 to 90% of all businesses in Canada are SMEs.
The Chamber network across Canada is using its collective voice on this issue; your voice as a business person needs to be heard as part of this initiative …
The government needs to know that this tax reform will harm businesses of all sizes.
The South Dundas Chamber of Commerce is urging potentially affected businesses to send a letter to Lauzon — member of the Official Opposition Conservatives — and has made a template available for the critical missive that aims to change the mind of the governing Trudeau Liberals.