Small businesses in Banff and Lake Louise are voicing opposition to the federal government’s proposed tax changes aimed at closing loopholes that allow wealthy Canadians to avoid higher tax rates.
Banff & Lake Louise Hospitality Association (BLLHA) has fired off a letter to the federal government stating its position on behalf of many small family-owned and operated tourism and hospitality interests in Banff National Park.
Officials say the government’s efforts to limit income sprinkling – where money is transferred from a family member in a high tax bracket to one in a lower bracket via wages in a corporation – treats income distribution of all corporations the same way, regardless of whether it is a professional corporation, or small business corporation.
“In Banff and Lake Louise’s tourism economy there are countless examples of small family businesses where young members of the family are involved actively, or, at least seasonally, in support of the operation,” said Darren Reeder, BLLHA’s executive director.
“As a destination that has suffered the consequences of severe labour shortages for years, this tax planning tool enables small businesses to remain entrepreneurial and profitable,” he added.
“As a family’s entire personal asset value is often tied up as collateral to the business, it is critical that the entire family unit continues to enjoy the tax advantages a chosen corporate structure affords them.”
In mid-July, the Liberal government proposed to close what it has identified as three loopholes which, it says, allow some high-income Canadians who incorporate their businesses to avoid paying a higher tax rate.
The government said restricting income sprinkling is meant to level the playing field, and to avoid advantages business owners have over employees who earn money from a salary.
The federal government also wants to close loopholes not available to salaried workers by changing the way it taxes private corporations in relation to capital gains and passive income.
The government hopes to recoup $250 million a year from the changes.
Finance Minister Bill Morneau said the government is soliciting feedback until Oct. 2.
“We don’t want to in any way jeopardize the strength and health of the small business sector,” he said. “We are still listening and we have not finalized the measures.”
Reeder said BLLHA fundamentally disagrees with the elimination of any tax-assisted advantages that are currently available to businesses to invest passive investments.
He said passive investment income not only represents a ‘hedge’ against business interruption, economic downturns and other emergencies where additional cash-flow is required, it is often the principal long-term savings vehicle business owners use to save for retirement as RRSPs often are not an avenue available to owners.
“Any changes to current tax practices could fundamentally limit the risk-taking culture Canadians entrepreneurs embrace in their day-to-day lives and significantly undermine the performance of the Canadian economy,” he said.
“If the proposed tax laws attempt to treat the earning capacity of an employee and a director/shareholder willing to risk all their personal capital on a business enterprise the same way, there will be no underlying incentive to risk capital in Canada and capital will take flight to other markets.”
Reeder said government’s amendments to restrict situations involving the conversion of dividend income to lower-taxed capital gains have several significant adverse and unintended implications for long-range estate and succession planning for family businesses.
“The rules, as they are currently proposed, are incomprehensible and susceptible to such broad application as to capture ordinary-course transactions involving family members,” he said.
