Small businesses have tax change concerns

The federal government has proposed significant changes to the tax system, in particular in terms of small business.

The changes are meeting with significant opposition across the country.

Those attending a Yorkton Chamber of Commerce luncheon last Thursday gained some added insights into what may be coming from Sarah Tkachuk, partner at KPMG based in Regina.

The government plan is supposed to be designed to close loopholes the government has stated give a growing number of wealthy, small-business owners an unfair tax advantage over other Canadians.

But Tkachuk said Thursday the changes go beyond creating fairness between the taxes business owners pay and those an employee might pay in similar circumstances.

“We’re concerned how pervasive they are, or how far reaching they are,” she said of the changes unveiled in July.

The legislation which would enact the changes are still in the draft form, said Tkachuk.

“So it hasn’t been passed into law yet,” she said.

The changes are now going through a public feedback, but the period is short, ending in mid-October, said Tkachuk, who added those wanting to voice their concerns have a limited time to contact members of Parliament.

The changes focus on three areas of taxation, said Tkachuk; income splitting, conversion of capital gains into dividends, and how a business changes hands.

In the case of income splitting Thachuk said the government concern is that family members being paid dividends receive “better tax rates than the employee would.”

While the changes are supposed to include a reasonability test to determine just how much labour a family member might contribute to a business, affecting the taxation rate, ultimately many family members in a business will pay more, said Tkachuk.

“Virtually all income splitting opportunities will be eliminated,” she said.

The changes would also change the taxes applied to business sales, in most cases disadvantaging the sale to family members, (intergenerational transfers), compared to a sale to a third party, explained Tkachuk.

There are supposed to ways to “mitigate genuine intergenerational transfers,” she said, but added the process would seem to be subjective in nature.

The combination of changes is significant.

Tkachuk termed it the biggest change in taxes in 45-years.

Tkachuk said overall the “most significant concern” for those work with tax policies day-to-day, is “the complexity … and how subjective” the changes will be.

As a result Tkachuk said groups across the country, led in large part by chambers of commerce, have been lobbying for changes to reduce the impact on Canadian small business.