Ottawa鈥檚 fall parliamentary session is a couple of weeks away and Canadians are already getting a preview of what could be the season鈥檚 main event: a scrap over the Liberals鈥� proposed tax changes.
The 台湾MM裸聊室 government鈥檚 controversial plan is designed to close loopholes that it says give a growing number of wealthy, small-business owners an unfair tax advantage over other Canadians.
Prime Minister Justin 台湾MM裸聊室 himself has rejected criticism over the plan, arguing Friday he 鈥渨ill make no apologies鈥� for his commitment to fairness.
But when it comes to the tax proposals, his Liberals have left themselves room to manoeuvre, if necessary.
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The mid-July announcement launched a 75-day consultation period, ending Oct. 2, to allow people to digest the complex proposals and provide feedback that could lead to adjustments.
At the time, Finance Minister Bill Morneau admitted he anticipated some push back.
His prediction is coming true.
Opposition has been growing through the summer and it鈥檚 clear critics of the plan won鈥檛 watch the changes go through without a fight.
An organized movement argues the tax incentives targeted by the Liberals are critical for Canada鈥檚 economically crucial small-business sector. It insists the current tax structure is necessary for entrepreneurs, including those in the so-called middle class, who take personal financial risks when they decide to open a company.
The backlash has been led by a coalition of more than 40 industry associations as well as the government鈥檚 Conservative rivals. Individuals, including tax professionals, doctors and engineers, have also spoken out against the changes.
At the centre of the storm is a three-part plan to eliminate tax loopholes and even out what Morneau describes as an 鈥漸nfair playing field.鈥�
One change seeks to eliminate an incentive that enables small-business owners to use their corporations as a way to shift some their income to family members who face lower personal tax rates, even if those relatives are not active in the business. Ottawa says addressing unfair 鈥渋ncome sprinkling鈥� with these changes would provide an estimated $250 million per year in additional federal revenue.
Another change would limit the use of private corporations to make passive investments in stocks or real estate. The proposed change is designed to ensure that taxes on passive investments inside a corporation are treated the same way as those outside the company.
The third reform would limit the ability to convert a corporation鈥檚 regular income into capital gains that are typically taxed at a lower rate.
The Liberals have maintained the changes are aimed at creating more fairness in the system, while many opponents have described it as a cash grab.
Complaints over the proposals have washed into riding offices of now-jittery Liberal backbenchers, who will explore the issue at this week鈥檚 caucus retreat in Kelowna, B.C.
Last week, Morneau held an hour-long conference call with his fellow Liberal MPs to reassure them that the government is open to adjustments to avoid unintended consequences. He gave them ammunition to fight back against what the feds see as misinformation circulating about the proposals.
He has also scheduled a meeting with journalists in Tuesday to confront the uproar.
But some tax experts who have studied the proposals closely still have significant concerns.
鈥淲e鈥檙e not misunderstanding this document,鈥� said Joel Cohen, director of Coehn Sanderson Inc. in Toronto, who added he has discussed the document with some of the best tax experts in Canada.
鈥淭his is a very, very foolish policy. It鈥檚 very poorly conceived, it was rushed through.
鈥淚t was initiated by bureaucrats who have never invested in a business, who have no idea what it鈥檚 like to get that next sale and to pay the rent and to have employees and have all this exposure 鈥� and to not know what tomorrow鈥檚 going to bring.鈥�
Cohen, who has been a public accountant since 1969, argues that despite the risks, entrepreneurs don鈥檛 have the same protections as employed people, many of whom benefit from severance requirements, pension plans and vacations. He added that small businesses are also often family activities, which make them a 鈥渇amily risk.鈥�
He added the tax-deferred, passive-investment portfolio now in Ottawa鈥檚 crosshairs provides business owners with a retirement savings vehicle they otherwise wouldn鈥檛 have.
鈥淚t will seriously damage entrepreneurship in Canada. That鈥檚 not good for anyone,鈥� said Cohen.
Chris Struthers, who owns an engineering firm in Penticton, B.C., said if the proposed changes had been in place six years ago he doubts he would have quit his job to start his own company.
He supports the goal of shutting down abuses of the tax system, but he fears legitimate firms like his will be hurt by the changes.
Struthers, who has 10 full-time employees and often even more depending on the season, also criticized the government鈥檚 message for making entrepreneurs feel like tax cheats.
鈥淎 lot of business owners, we鈥檙e quite happy paying taxes,鈥� said Struthers, who created a website to fight the proposals.
鈥淲e pay our fair share, we punch above our weight in contributions to the economy and to suddenly be labelled like that, a lot of us have found that very offensive and insulting.鈥�
Conservative deputy leader Lisa Raitt expects the autumn battle over tax reform will be 鈥渉uge.鈥�
Raitt, who has been holding roundtables on the proposals in different parts of the country, said the issue deserves a longer, more structured consultation period. She warned it could significantly damage the economy.
Feeling the pressure, the government has already started countering the criticism.
鈥淲e鈥檙e consulting about closing unfair loopholes. We will NOT raise taxes on small business,鈥� Morneau wrote on Twitter last week in a series of tweets that he began with 鈥淭o clear some things up.鈥�
The rules are designed to help businesses grow - not shelter personal income from tax. Canadians deserve . 1/
鈥� Bill Morneau (@Bill_Morneau)
Kevin Milligan, a UBC economist who has advised the government on tax reform, said he supports the goal of putting business owners on the same level as everyone else when it comes to taxes.
For example, when it comes to passive investments, he said it would only make sense for the small number of business owners who had already maxed out their contributions to both their RRSP and tax-free savings account. Those who can are typically high earners, he added.
When it announced its plan, Ottawa released detailed proposals for income sprinkling and capital gains. However, the more complex issue of passive investment was still under development.
Since then, the government has sent signals it is open to tweaking its proposals.
鈥淚鈥檓 happy to have discussions and feedback from interested Canadians who want to make our tax code fairer and we鈥檙e going to take all of those reflections into account,鈥� 台湾MM裸聊室 said Friday.
Milligan thinks there could be room for improvements.
鈥淚鈥檓 really glad that they鈥檝e set up this period of consultation. And the reason is, when you get into writing the legislation, that鈥檚 a really tricky thing,鈥� Milligan said.
Andy Blatchford, The Canadian Press
