Tax changes are about levelling the playing field

Posted on September 5, 2017 in Policy Context

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TheGlobeandMail.com – Opinion
September 5, 2017.   BILL MORNEAU

Bill Morneau is Canada’s Minister of Finance.

I know first-hand that running a business is hard work. It involves taking risks, suffering setbacks and often a great deal of sacrifice.

As Canada’s Finance Minister, I am committed to ensuring that this hard work is rewarded, so that businesses small and large are able to invest, grow and create jobs.

The good news is businesses are doing just that. In the past year, we have seen the fastest real GDP growth in more than a decade. Second quarter results at 4.5-per-cent growth and more than 350,000 new full-time jobs created over the past year mean our economy is growing faster than any Group of Seven country.

But economic growth alone is not good enough.

That is why, as its first order of business, our government introduced a middle-class tax cut that is benefiting nearly nine million Canadians – and, yes, to finance it, we raised taxes on the top 1 per cent. It is also why we brought in the Canada Child Benefit, which puts more money in the pockets of nine out of 10 families, helping lift hundreds of thousands of children out of poverty – leading to a 40-per-cent reduction in child poverty by the end of this calendar year.

But the job is not done.

Over the past 15 years, we have seen big changes in our economy. The number of Canadian-controlled private corporations (CCPCs) has increased by 50 per cent and makes up a much bigger part of our economy than they did in the early 2000s. For professionals, the number of corporations has tripled over that same period.

While we know most businesses are investing and creating jobs, we also know that corporate structures are being used to reduce personal taxes. That leaves us with a challenge that is unsustainable. As more and more people set up corporations, there is a growing number of individuals who have access to tax advantages not available to other hard-working Canadians. This means that some of the highest-income earners are effectively being taxed at a much lower rate than everyone else. It is legal, but as a former business owner and high-income earner myself, I do not think it is right.

The average income in Canada is estimated to be about $49,000 this year. An incorporated professional earning $300,000 with a spouse and two adult children can save about $48,000 in taxes by using just one of these loopholes. What that means is an incorporated professional could be taxed at a lower rate than a salaried nurse practitioner or police officer making much less a year.

Earlier this summer, we launched a consultation on proposals to address this problem. As part of this effort, I am visiting small business owners and professionals across the country, looking to hear their ideas, concerns and to answer their questions.

Most middle-class Canadians and small businesses will be unaffected by these changes. According to the Coalition for Small Business Tax Fairness, 66 per cent of small businesses earn less than $73,000 a year.

For passive investment income to provide an advantage over and above what is available to every Canadian through RRSPs and TFSAs, a business owner needs to earn more than $150,000.

That is because the more you earn, the more you stand to benefit from these tax-planning strategies. No wonder some estimate that two thirds of the wealthiest 0.01 per cent own a CCPC.

For those business owners and professionals who have saved and planned for their retirement under the existing rules, I want to be clear: We have no intention of going back in time. Our intent is that changes will apply only on a go-forward basis and neither existing savings, nor investment income from those savings, will be touched.

Farm owners will continue to receive a lifetime capital gains exemption of up to $1-million for farm property, facilitating the transfer of their business to the next generation.

We will continue to protect a business’ ability to compete, invest, grow and create jobs. Money that stays in the business will continue to take advantage of the lowest small-business rate in the G7,and some of the most competitive corporate tax rates in the world – more than 12 points lower than the United States.

At the heart of these proposals is our promise to the middle class, and a belief that every Canadian should feel confident that they have the same opportunity to succeed and benefit from a growing economy. That confidence starts with knowing everyone is treated fairly.

I invite all Canadians to find out more, and to make their voices heard, by engaging with me on Twitter (@Bill_Morneau), on Facebook or by writing to the Department of Finance at fin.consultation.fin@canada.ca

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