Chances are, you’ve heard rumblings of some proposed tax changes waiting in the wings. There are vague phrases floating around like “tax fairness” and “closing corporate loopholes”. You might think that finally the government is coming after the corporate big bad wolf that eats the hardworking employee’s dreams for breakfast. This is good. It’s about time. And has nothing to do with me. Right?
Sorry to break it to you, but this one will more than likely be knocking on your front door.
As advisors, we talk to business owners daily. I can guarantee you that the conversations don’t revolve around how peachy their tax bill was this year and how they are rolling around in all the extra money they got to keep from “loopholes”.
They talk of long work hours, the balance of meeting expenses and keeping valued employees in tough times, and how they are using their home as collateral to build a dream. These people, and anyone who works for them are the ones who will be impacted by the proposed changes.
In Alberta we are just starting to see our economy get a foothold after a couple of awful years, and it looks like we need to brace for another blow. Here’s how this will affect us. And by “us”, I mean you:
1. You are employed by a small business
Even if your personality type is not entrepreneurial, these new changes will be impacting your home, or a home near you. According to statistics Canada, over 75% of employees in Canada work in the private sector. If this is you, listen up.
Right now, your employer can keep an emergency fund saved in their corporation and defer the taxes on it until they pull that money out. Once the funds are withdrawn, they pay full corporate tax on the money, PLUS their personal income tax.
This is not a sneaky way of hiding money, it was created to encourage business owners to save for expansion (which creates more jobs) and weather storm like the brutal couple of years the energy sector has just experienced. This safety net your employer has so that they can keep you around in hard times is under attack.
2. You may want to own a business one day
I grew up in Alberta’s Peace Country. My first experience with work was in its booming economy. As a young adult, as long as you were willing to show up and work your tail off, you could do pretty much do anything you chose. I saw the opportunity in business and started a small contracting company. I was a single twenty-five year old, running around in a minivan with my tools painting people’s homes for a living. It wasn’t easy, but the opportunity was there for the taking.
For a while, I actually had the naïve perspective that this was the economic climate that all Canadians enjoyed. Until I realized that every second person in this area was from Newfoundland, Ontario, or B.C and were here because there is no work at home. Why was little ole Grande Prairie so much different?
Most people would say oil. And you would be partly right. The reason why Alberta has done so well at providing work for Canadians is because it has created a climate that is encouraging to the entrepreneur. Entrepreneurs are #jobmakers!
If you’ve ever considered branching out on your own, these changes would impact your ability to pull this off. If you are an incorporated business, these changes will make the money you will actually be taking home after everything is said and done 35 cents on the dollar or less.
I don’t know about you, but my entrepreneurial spirit just died a little. What would be the point of the 14 hour days and the stress of business if you cannot reap what you sow? And for quite a few, this could tip their business into bankruptcy after surviving the balancing act of keeping the lights on over the past two years.
3. Last but not least, you own a business
To put it lightly, you need to be concerned about this. Like I said earlier, these changes don’t just come after the big guys. Whether you have a one-man show contracting setup, an oilfield company, a retail store, you’re a doctor or a farmer, you will be impacted.
Are you hoping to pass your business onto your children? That’s about to get a whole lot more expensive. Maybe you have a spouse that contributes to the business in immeasurable ways that takes a wage? I’ve seen these spouses in action in so many family business operations. They do the bookkeeping, they invoice, pick up parts, they fill in every gap when the manpower isn’t there. Behind most business owners, there is a spouse that has sacrificed tremendously for the business. How much is that worth to you? Probably a lot, but the government is reserving the right to decide exactly how much.
Vague, subjective and far reaching “fairness”
The tax experts have spoken on this, and there are a few things in these proposals that are truly closing loopholes that some private corporations (that are willing to live in the gray area) still use. The red flags are being raised over the proposals being laid out in an extremely complex manner, yet there is also vague and subjective language that leaves too many important questions unanswered.
I would challenge you to think critically before you accept all things handed to you in the name of fairness. To me, fairness is the ability to live in an environment where you can have a vision, work like you never have before towards that goal, and create your dream no matter your background. Are we willing to take that away? Do we really hope to create a place where no matter how hard you work, all you can hope to achieve is the same economic participation ribbon as everyone else?
If there were ever a time to educate yourself and get involved it is now. If this concerns you, reach out to your member of parliament, take action by signing the petition and speak up by writing the finance minister.