Tax changes pose an additional headwind for small manufacturers: CME CEO Darby
Canada’s manufacturers have joined the chorus of voices warning Finance Minister Bill Morneau to tread cautiously with the federal government’s proposed tax plan.
Industry group Canadian Manufacturers & Exporters (CME) penned a letter to Morneau on Monday, accusing the Finance Minister of a “narrow and incomplete view of tax fairness.”
“We are in tough times right now, a lot of our work is with NAFTA and the changes related to that,” Dennis Darby, CME president and CEO, told BNN in an interview on Monday. “It’s not going to get any easier for companies to compete and so anytime the government looks at ways to say we are going to take away some of those incentives that help you compete — it’s certainly not positive.”
While many people think of manufacturers and exporters as large companies, but many are smaller firms that will feel the brunt of the Ottawa’s proposed small business tax changes, said Darby.
“We accept the motivation behind the proposed changes to the taxation of CCPCs; self-employed individuals — primarily in services sector industries — are using the tax advantages of private corporations to lower their tax burden,” he said in a letter to Morneau.
“However, based on our analysis and consultation with members, we are concerned that the proposed changes will impact a much broader range of business activities and do not live up to our guiding principles as they apply to owner-operated manufacturing companies. They focus on a narrow and incomplete view of tax fairness and by so doing, strike well beyond their intended target, potentially resulting in significant negative unintended consequences for small manufacturers.”
Last week the business community voiced its dissent, with billionaire Seymour Schulich emailing Morneau to warn that the planned reforms amount to "political suicide." A coalition of entrepreneurs likewise took aim at Prime Minister Justin Trudeau over the weekend, launching the website wtfjt.ca to outline their grievances with the proposed changes.
CME outlines steps that could be taken to improve the plan in their letter. The organization argues that spouses of private corporation owners should continue to be eligible for income splitting benefits, the difference between legitimate business operations and those being used as tax shelters need to be better defined and that the government needs to reduce the strain of these changes will impose on small businesses and their record-keeping practices.
“[W]e believe that the Government of Canada should not rush to apply significant but flawed piecemeal amendments to the tax code with only limited consultation and a rapid implementation timeline,” Darby wrote.
However, the CME also added that the endeavor to change Canadian taxes is not without merit.
“We fully agree that tax reform in Canada is badly needed,” Darby wrote. “We strongly believe that Canada needs to work towards a simpler, fairer tax system that is globally competitive; that encourages innovation and economic growth; and that rewards reasonable risk-taking, entrepreneurship and job creation.”