Around The World in 100 Words - August 2017, Week 34

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For any fans of the National Post -normally a pro-business publication, this weeks’ article by Mr. Coyne may come as a shocker (like say CNN writing something favourable about President Trump). In case you missed it, I've included the link and my posted response to it. The old saying was "a man who builds a factory, builds a Temple." The 21st century version of this should read: "the entrepreneur who builds a business, builds their community and their country." Mr. Coyne would do well to remember this.

 

http://nationalpost.com/opinion/andrew-coyne-i-dont-hate-small-business-i-just-think-they-should-be-taxed-fairly

 

Mr. Coyne displays a shocking ignorance of the Canadian Income Tax Act, which eviscerates his entirely wrong- headed argument. To be clear, the Act most assuredly does take risk into the rate of taxation applied, evidenced through everything from preferential tax treatment on dividends and capital gains, tax deductibility of interest for investment purposes and, since 1973, has seen Canadian Controlled Private Corporations (CCPCs) pay tax at a preferred rate relative to salaried income and give business owners a tax free capital gains exemption on the sale of the shares of their CCPC. Why? Because Mr. Coyne, income is not income is not income. Your premise is false and refuted by the Act itself. The Act (though imperfect) is structured to reflect risk. The higher the risk the greater the preferential tax treatment. In your article you say that "no one is rebutting the argument you have made". Well I am. Risk not only IS factored into the tax treatment of income and related financial decision (including being self-employed), but SHOULD be, as the creation of an entrepreneurial climate that encourages Canadians to take risk -and receive preferential tax treatment in return for having taken that additional risk, is ultimately good for society as awhole. Without employers, there are no employees. Treat all income as if it is the same, will result in fewer small businesses, fewer mid-sized businesses and fewer large businesses (the latter two result from the first). Long term, the standard of living of Canadians will decline. So the present rules are there to benefit society as a whole, not just entrepreneurs.

Consistent with the premise that giving entrepreneurs a tax benefit, benefits society as a whole, the Act also gives preferential tax treatment to other worthwhile objectives it wants to achieve. Like Education for example. Registered Education Savings Plans (RESPs) receive a 20% cash handout from the Federal Government (note small business gets no such cash handout for anything -  you have to reach Bombardier-size for that) and the growth on the investments in the RESP accumulate tax deferred. Money's withdrawn are most tax free, as starving students get to add tuition and books to their Basic Personal Exemption, allowing them to access most, if not all their RESP money without paying any tax. Tax deductibility of RRSP and pension contributions, medical expenses, charitable donations et al, all receive tax benefits -just as owners of CCPCs do and should continue to do. Your assertion that "It's up to you to decide whether the rewards of running a small are business are worth the costs and risk, not the taxman" is belied by the Act is practice and in intention. This is basic information available to the public Mr. Coyne, including you. And to highlight the wrongness of your thesis, why don't you apply your above-mentioned quote to the rest of the Income Tax Act. To be logically consistent, shouldn't you also be arguing that 'It's up to you to decide whether the rewards of saving for retirement/your children's education/supporting charitable causes etc are worth the costs are the risk, not the taxman'? If so, the Act would have to eliminate all tax deductions, tax credits, tax deferral -even the Basic Personal Exemption itself (in case you are unfamiliar with this this is the tax free amount of $11,474 that every Canadian enjoys tax exempt annually). After all Mr. Coyne, income is income is income -your words, not mine. So low income Canadians would be taxed on dollar one. To be clear, if the Act did not allow for income to be treated equally, what would Canada look like? Answer, a whole lot less entrepreneurial, fewer jobs, less opportunity, lower University and College enrolment, less retirement savings, greater financial insecurity, fewer Charities and sicker Canadians (Health & Dental premiums are, after all, tax deductible). Simply put, the Income Tax Act is structured to produce outcomes that are good for Canadians overall, and any changes that go against that objective must be rejected on principle and in practice. Mr. Coyne, refute that.

 

Martin 519-546-5088