Tax changes pit wage workers against small business owners, say Cloverdale Chamber members

‘Tax Fairness Consultation’ attendees provide feedback to Cloverdale-Langley City MP

Surrey and Langley business representatives came to a consensus at Thursday night’s “Tax Fairness Consultation,” hosted by Cloverdale-Langley City MP John Aldag.

According to the business owners who spoke at the meeting, the proposed changes to the tax system put forward by Finance Minister Bill Morneau to “end tax loopholes in July should not be supported.

The changes include cutting back on “income sprinkling,” which is when business owners shift a part of their income to family members through salary or dividends.

The plan also puts an end to “passive investment income,” which is described by the federal government as when an individual holds money inside a corporation “not to invest it in growing the business, but simply to shield it from the higher personal tax rate.”

The view expressed by the business owners in the room, who would be affected by the proposed changes directly, was that they were being targeted unfairly.

The Cloverdale Chamber of Commerce, which hosted Thursday’s session in partnership with Aldag, has not released a statement regarding the proposed tax changes. However, the Greater Langley Chamber of Commerce has started a letter writing campaign, along with dozens of Langley small business owners, urging the government to scrap the proposed changes.

The solutions offered by Thursday’s attendees ranged in scope and detail, but the speakers agreed that the federal government should scrap the proposed changes and start over.

Aldag, who hosted the session in partnership with the Cloverdale Chamber of Commerce, began the session by apologizing for the rhetoric that has surrounded the proposal since it was announced in July.

“It’s very important to me to say, and I’ve said this to our Prime Minister and our Financial Minister, I think our government got the messaging on this wrong, right out of the gate.”

“When we start off with really inflammatory language, saying that [businesses] are not paying their fair share of taxes, or that people are tax cheats, I find that really offensive, and that’s not the way to start the discussion. I apologize for that.”

In the preamble to the document that introduces the proposed tax changes, it says the changes will be a “decisive action” to improve the fairness of the tax system, and that the proposed measures will prevent “underground economic activity, tax evasion, and aggressive tax avoidance.” The measures, it continues, will “close tax loopholes that result in tax advantages for some at the expense of others.”

One speaker, who identified himself as a farmer from south Cloverdale, said that the rhetoric misrepresented the situation and contributed to a “politics of envy,” in which the federal government set wage workers against the owners of small businesses.

“It’s very easy to pit the people that have a lower income against the people who seem to have more, but all they’re looking at is a snapshot of where they are at that moment. They’re ignoring the 30 years it took to get there, and the grief and the risk it took to get there,” he said.

Chartered Professional Accountant Shane Schepens shared how the changes would affect him and his business partner, his wife, who has shared the stress and the risk of owning a business with him every step of the way.

Schepens explained that he and his wife have spent the last few years putting in long days and taking financial risks in order for their business to succeed. The two mortgaged their house and “depleted bank accounts,” among other personal sacrifices.

Everything, he said, went into building their business and they are “just starting to see the fruit of it now.”

“And now the government says that I can’t reimburse my wife for some of that pain,” he said, referring to the changes to the laws surrounding income sprinkling. “I’ve been a CPA for long enough to know that [Canada Revenue Agency’s] view on spousal labour is zero.”

“So the fact that my wife works a couple hours a night, [as well as the fact that] she’s my confidante, she’s my business partner, she is everything to me and every major decision gets run by her — to CRA she’d be worth zero.”

Jas Salh, who works as an investment advisor in Surrey, said that there should be no comparison between a business owner and a salaried employee.

“A person on a $100,000 salary gets a pension, all the benefits and the perks, and gets to go home at night, whereas the person that is in maybe a corporation takes on the risk,” said Salh.

“When are you going to say enough is enough and that you’re going after the wrong people?” she asked.

Dave Hayer, former MLA of Surrey-Tynehead, agreed. “I have never seen people so angry about the tax changes,” he said.

“The people who are advising you are making huge mistakes,” he continued, addressing Aldag. “What you’re saying, that this is helping the middle class, is not the reality. You’re hurting the middle income [class].”

As for cracking down on passive income, Schepens said, “It’s great that your government is saying that people have to save for their retirement. Well, that’s what small business owners have been doing through their companies.”

“To say that passive income is now dirty income, effectively, … it’s just wrong in my opinion.”

Rebecca Smith, executive director of Surrey Hospice Society, agreed that the changes were a step in the wrong direction and that they were pitting business owners and employees against each other.

Instead, she said, the government should look at where “the tax failure, the fraud and the tax evasion is happening.”

“It’s in multinational [corporations], it’s in tax havens,” she said.

“What we need to do is look where our economy is built,” said Smith. “It is on the backs of entrepreneurs. Our small and mid-sized businesses are driving our economy, driving our charity sector, and are successfully supporting the lives of everyone in our community.”

“The last thing I want to do and the last thing our government wants to do is impact the ability of small businesses to succeed,” said Aldag, referring back to his opening remarks, in which he said small business was the “lifeblood of our local economy.”

“There are perceived imbalances in the playing field that the current tax system creates,” he said. “Really that’s the essence of what we’re trying to get at here, is how do we create a more balanced tax system?

I really do not believe that we’re going to force these changes through without listening to Canadians, and understanding what the implications are. If I thought that, I wouldn’t be standing in front of you today, getting your feedback,” he said.

Aldag said he would combine the session’s feedback with the feedback he received at a town hall held in Langley on Tuesday, and send it as a package to Trudeau and Morneau.

To learn more about the proposed changes, and to provide feedback, click here.

With files from Monique Tamminga

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