Killing the entrepreneurial spirit

Posted on in Debates – Opinion/Columnists – Corporate tax changes under consideration by the federal government are illogical and unfair
JULY 29, 2017.   By JIM WARREN, Postmedia Network

In the dead of summer, federal Finance Minister Bill Morneau has announced consultations that he says will address the issue of tax fairness for private corporations.

The announcement was called: “Next steps in improving fairness in the tax system by closing loopholes and addressing tax planning strategies”.

In reality, Ottawa’s tax bureaucrats are running amok with proposed tax increases that if implemented will kill much of the entrepreneurial spirit in Canada and thousands of jobs created by small businesses.

For someone to start their own business is a huge risk. I know, I’ve done it.

It’s also essential to growing our economy and creating jobs.

In our system, small businesses pay less tax than big businesses or salaried employees because we all benefit from the success of small business.

Morneau’s consultation paper provides the following example to illustrate the government’s argument.

Ironically, it indicates the utter unfairness of what they plan to do.

Jonah and Susan are neighbours living and working in Ontario.

Each lives with their spouse and children, who have no significant sources of income.

While Jonah and Susan will each earn $220,000 in 2017, Susan’s household pays about $35,000 more tax than Jonah’s household.

That’s because Susan earns $220,000 as an employee.

She pays about $79,000 in income tax for the year.

Jonah has an incorporated consulting business that earns $220,000 before taxes and salary. He provides consulting services for the corporation.

It qualifies for the small business deduction in respect of its income from the business.

Jonah owns the voting shares in his corporation.

His spouse and two children, ages 19 and 21, also own shares, for which they paid little.

The corporation pays Jonah a $100,000 salary, and its remaining after-tax profits in equal amounts to the spouse and children as dividends.

The dividends are taxable income.

After accounting for corporate income tax, taxes on Jonah’s salary and dividend tax credits claimed by his spouse and children, his household pays $44,000 in total tax on the $220,000 earned through the corporation.

That’s $35,000 less than the $79,000 in taxes paid by Susan, on the $220,000 she earns as a salaried employee.

Read the full consultation paper here

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