Senior advisor laments the impact of legislation she says has caused a lot of unrest
Almost six months on from the budget, the tax changes remain a “slap in the face” to Canadian small business owners.
Cindy David, president of Cindy David Financial Group and independent senior estate planning advisor for Raymond James, said the Liberal government’s policies continue to be a source of unrest and uncertainty for clients.
In July 2017, Finance Minister Bill Morneau lit a fuse by unveiling proposals including changes to the treatment of dividends and capital gains, sharing business income with family members and, most controversially, restricting the use of small corporations for making passive investments, such as stocks.
The first proposal was abandoned, the second amended and introduced, and the third substantially tweaked and announced in February’s budget.
While seen as a retreat by Morneau and the government, it was still far from welcomed. Access to the lower small business tax rate will be gradually reduced for corporations that earn more than $50,000 in annual income from passive investments. Those earning $150,000 or more will not be eligible for the small business deduction.
David said the legacy of all this indecision has left many owners in limbo and made it hard to trust the government going forward.
She said: “What the Liberal government has done has really been a slap in the face for business owners and caused them a lot of unrest and an inability to plan.
“A lot of plans that have been put in place based on past legislation are being quelched so if you’re going to incur an expense or commit to something that is long term in nature, it’s this uncertainty about whether or not this is really a good idea. Will it be around and valuable down the road?”
David’s company also sells life insurance and said that, unlike with tax, when legislation is changed anyone with a policy that’s affected gets grandfathered. This aspect was left out of the small business budget, a move she believes was indicative of the confusion.
She said: “When those tax laws were written, it took them four years of consultation – this was not well thought through. They did simplify things with regards to passive income in the budget but what got missed was that we lost grandfathering. The original proposal had grandfathering for anybody who had saved a certain amount and you could start fresh from the date of the proposal.
“A few months later, the February budget … no more grandfathering. So if you did what you are supposed to do as a business owner to save corporately, now you are being punished.”
David said that the true impact of the tax changes is that successful business owners will be deterred from continuing their enterprises because the sacrifices are too great. She highlights the quandary of her own clients when faced with what she calls a “punitive” tax.
She said: “I have very young clients, who own a specialty convenience store, and they are killing it. But they also haven’t had a holiday in 18 years and want to have a baby and all this stuff. So, they are just going to sell it because they have done a good job; they’ve saved $3 million which is exactly how much it takes to lose your small business deduction.
“It’s a punitive tax so why bother. They are sacrificing lifestyle, they are sacrificing life and it’s a slap in the face. There are lots of situations where Bill and Justin [Trudeau] just didn’t contemplate the effect on the economy.”
David will share some of her industry experiences at WP's Women in Wealth Management event on November 21 at the Beanfield Centre, Toronto.