Around The World In 100 Words - August 2017, Week 31

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This week's Around the World looks at Canada from the standpoint of what keeps us up at night: The Economy. It is said that the "business of America is business," whereas in Canada just the opposite could be said, and the link to the National Post article attests to this at the level of Big Business.

But what about small and mid-sized businesses in Canada -the backbone of our economy? What does the recent Liberal Discussion Paper tell us about how entrepreneurs are seen and treated? For those of you enjoying the summer (despite the weather) who may have missed last weeks’ announcement, here's the Coles Notes:

The Liberal plan will remove the final remaining tax advantages accorded to owners of small and mid-sized businesses (called Canadian Controlled Private Corporations or CCPCs), by disallowing retained earnings to be invested through their companies and restricting or eliminating income splitting with spouses and other family members. These changes the Liberals argue is about fairness. They argue that everyone needs to pay their fair share of tax and income from a CCPC should be taxed the same as a salaried employee. Here's why they are wrong and why their plan is deceitful at best or malicious at worst:

1. Income drawn from a small or mid-sized business is risk-income, where the owner of the company has often borrowed significant sums of money to start and grow their business. This requires their personal assets being pledged as collateral, including their retirement savings and their home. If the business fails, the business owner stands to lose everything.

2. Business owners do not qualify for unemployment benefits, so if the business is struggling or fails, the owner is entitled to nothing. And exactly at the time their personal assets are being seized by creditors.

3. Business owners assume liability risk including litigation risk from everything as simple as a customer slipping on the sidewalk outside of their business to a client who sues over a fundamental disagreement with the good or service the business provides.

4. Business owners pay twice as much in CPP payments then salaried employees, yet can only collect once at age 65. And this is often the only pension income the business owner enjoys, as the cost of setting up and funding with intermittent cash flow Individual Pension Plans is both expensive and unaffordable.

There needs to be a correlation between risk and return. And the proposed changes that tax "a-dollar-as-a-dollar-as-a-dollar" regardless of whether the income is withdrawn from the business by a business owner or received by an employee as salary, utterly ignores the additional risk -financial, legal and market risks that small and mid-sized business owners take when starting and working in their business.

Every mega-corporation you know today started with an entrepreneur who had a dream, raised capital and took the risk to make that dream a reality. And in the process hired employees, paid taxes -both personal and corporate, and worked in their business every day, 365 days a year. Eliminating the few remaining benefits available to business owners is nothing short of an unprecedented, anti-entrepreneurial attack on hard working business owners who generate most of the jobs and opportunities for Canadians. The Liberal proposal is unfair and wrong. What's more is that it will mean fewer young Canadians will be willing to follow their dreams, take risks and start their own businesses, thereby contribute to the growth of the Canadian economy. This will be bad for all Canadians in the long term.

Business owners are your neighbours, your friends and your employers. I encourage all of you to write your MP and let them know that you recognize the critically important role that business owners play in the Canadian economy. And for that, let’s ensure that the income tax act reflects the rewards AND THE RISK that come with starting and growing one's own business. Bottom line is that we can't all be part-time drama teachers, after all, if we were, where would the tax revenue come from to pay our salaries?

Martin
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