Tax reform: a war of words and numbers on Parliament Hill

Tax reform, or Finance Minister Bill Morneau‘s plan to change the tax regulations for small businesses, is becoming a very heated debate in Canada.

Monday September 18th, on the first day of the fall session of Parliament, Andrew Scheer, the new leader of the opposition Conservative Party, hammered away at the Prime Minister in Question Period.

The reform was announced in mid-July, with the ruling Liberal party, contending that some of Canada’s wealthiest people were taking advantage of loopholes that allowed them avoid billions in taxes,

These changes include ending what’s known as income sprinkling, the practice incorporated small businesses use to distribute income to family members who may or may not work in the business, and as a result, get taxed at a lower rate.

Another change reduces private corporations ability to make passive investments in stocks and real estate.

And a third reform eliminates the opportunity to convert a corporation’s earnings into capital gains, which are taxed at a lower rate.

“There are things in the Income Tax Act that need to be addressed, that are unfair.”

In parliament, Andrew Scheer attacked the government in defence of “hard-working Canadians, job creators and entrepreneurs”.

But as they say, the devil is in the details.

Paul Lefebvre is the Liberal Member of Parliament for the city of Sudbury, Ontario.

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He is a tax lawyer and small business owner himself, and his wife, as a doctor, is a member of one of the groups apparently targeted in these changes.

After getting his own queries clarified, Lefebvre is now helping to explain the proposed changes during this current consultation phase.

“What is changing, or being proposed to change, is the way that they extract the profits from the business.” Lefebvre explains.

“We feel that it’s not fair that an 18-year old child, that is now a shareholder of a business recieves a dividend tax-free, so basically only paying within the corporation 15 per cent tax.”

He goes on to provide a more concrete example, “We feel that a three-month old child should not get an $830.000 dollar capital games exemption because their parent has sold the business.”

Lefebvre says “there are things in the Income Tax Act that need to be addressed, that are unfair.”

He says there’s a lot of misconceptions about the changes now, and it’s why the consultation phase is crucial, so middle-class business owners will see they won’t be affected.

It’s the people who sit on their money and don’t reinvest.

“The reason why we have corporations in Canada, and a small business tax rate, is for these corporations to reinvest their profits in either, equipment, buying another company, hiring more people.”

Lefebvre says, “we’re just making sure that certain corporations, that are not stimulating the economy, are not growing the economy do not have these tax benefits, that other companies that do grow the economy, should have.”

He acknowledges the concern and says he has been hearing a lot from constituents. But he emphasises that this is a consultation phase, that they are listening, and that the Minister of Finance will be reviewing the varied reactions and suggestions.

And Lefebvre also emphasizes that the revisions are not retro-active.

But critics question why the government is targeting small business owners when the problem of off-shore tax shelters for the very wealthy is more of a challenge to the Canadian economy.

Lefebvre says the Liberal government in its last two budgets allocated $400 million (Cdn) to address the growing trend. He says the Canada Revenue Agency, hired more staff with the sole purpose of tracking the Canadian money going to tax havens.

“We are currently seeing a major return on that investment; almost a 5 to 1 return with respect to attacking tax havens and basically individuals taking advantage of those.”

Meanwhile, as many as 300 Canadian doctors have signed a letter in support to the proposed tax changes.

Many of these doctors, who are high income earners and operate their practices as small businesses, say in a joint letter.

“While we have had some concerns with the government’s approach and language used in the rollout, we do fundamentally support an equitable taxation system as a pillar for a just and healthy society,” the letter states.

With files from CBC