On the latest episode of The Disruptors, co-host Bruce Croxon — and co-founder of Lavalife and Round 13 — joined a chorus of criticism against the Liberal government’s proposed tax changes for small businesses.
The Liberal government is proposing the tax changes as a way of “closing loopholes” it says are unfair to middle-class Canadians. Small businesses say that they feel unfairly targeted, and that the government is actually harming the tech startups that it wants to support.
— Arlene Dickinson (@ArleneDickinson) August 28, 2017
“[It’s] never been a better time to start a company in Canada, welcome new immigrants – there’s a guy south of the border making it easy for us to attract talent — this is our time, capital’s starting to flow,” said Croxon. “And just as we’re about to really go, these guys come up with something to disincentivize entrepreneurs from building companies.”
The proposed changes fall into three categories. The first change includes restricting the use of income sprinkling by January 1, 2018. Through income sprinkling, business owners in a high-income tax rate can reduce the total amount of tax paid by their family by sprinkling income to family members in lower tax brackets.
The government wants to restrict the ability to pay salary, wages, dividends to adult children between the age of 18 to 24, and provide a “reasonableness” test to assess the adult child’s contribution to the business.
The second proposed change includes restricting the use of private corporations to make passive investments unrelated to the business using money left in a corporation.
“They work 80 hours to get the benefits of a 40 hour week.”
“They want me to take that cash out of the business so they can take more tax off it, meanwhile if I hit a rough patch or a downturn I’m going to have to go to the bank and borrow that money and pay interest,” Don Paton, founder of Ontario Crane Service, told the CBC.
The third proposed change includes limiting a business owner’s ability to convert income into capital gains as a way of paying less tax.
“[They’re] going from a first principle that’s basically saying, why should entrepreneurs have an advantage over someone who works a 40-hour work,” said Croxon. “I’ll tell you why. They work 80 hours to get the benefits of a 40-hour week. They’ve chosen to sacrifice their home life and put pressure on their partners at home. There needs to be a reason to go out and do this. It’s too much at the wrong time.”
Croxon says that if it’s about raising revenue, entrepreneurs should be empowered to create jobs and add value.
Consultations on the proposed changes will be closed two weeks after Parliament resumes on September 18.
Watch the video below for more on Croxon’s thoughts:
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