Apparently only two things are certain in life: death, and taxes. The newly proposed changes to federal taxation for small businesses is making the certainty of taxes a little more complicated.
I would like to preface this by saying I am not a tax specialist. I’m sure my accountant (hey, girl!) is wondering what I could possibly even offer on the topic, but my goal is to draw attention to this serious matter, provide information links below where people can read the facts and even sign a petition if they so choose. Official comments must be forwarded before October 2.
Thanks to my upbringing, I know just enough about taxes to be dangerous. That’s okay, because now I can spot danger when I see it, and the proposed federal tax legislation definitely sounds an alarm bell. Because of the way we are structured, the proposed changes won’t affect us in the short term, however these changes have major implications in the way we do business going forward. My gravest concern is these changes may potentially limit our ability to formally involve our children, in more than just a free labour capacity, in our business someday if they are interested.
Small businesses are the lifeblood of Canada and provide hundreds of thousands of jobs for Canadians. For business owners, they provide the opportunity to “follow their dream” and “be their own boss” which sounds all kinds of sweet. In the end, it really involves a major personal investment of money, long hours, no pay/pension/benefits/maternity leave (hey-o!), but lots of stress and big-time sacrifice for owners who are after a different type of currency.
For small business owners, regardless of whether you operate a ranch, a hair salon, or a medical practices, employees and expenses need to be paid first, often not leaving much left behind for the owners. The owners may either choose to pay themselves a wage (ha!) or save the money in a non-RRSP for a
crop failure drought tractor blow-up fire flood rainy day. (*Side note: I would totally welcome a rainy day this year). Farmers have to be ready for whatever delight Mother Nature throws at us and we need accessible money that’s not locked into a traditional pension or long-term savings. And if there is extra money, maybe we will go ahead and get ourselves something fancy, like a water bowl that wasn’t fashioned out of five old ones, or a new-to-us set of tires for our fifteen-year-old pick-up. If we are feeling extra devious, we might even fertilize that “moo chew” crop of ours! What a tax shelter!
My concerns with the proposed tax changes are:
Succession planning – proposed changes will provide a greater tax incentive for farmers to sell land to a non-family member or business, rather than to a potentially interested family member (who does not meet the intergenerational rollover definition). This isn’t right. You can sell your land to whoever you want to, but you shouldn’t be penalized for selling it to a family member if there’s a willing buyer and a willing seller. And for farmers who have already started the complicated journey of succession planning and have used existing tax scenarios as a guide, these potential changes are a major hit.
Income sprinkling – around our place, there’s not a lot of income to sprinkle, but there’s a sh*t load of work dumped on anyone old enough to ride a horse, hold a shovel, or market cattle. (At this point, the new infant is getting a free ride, but I’m sure that will change). For small business corporations, proposed changes will limit compensation paid to partners or owners otherwise triggering a large increase in taxes for those people. Also, compensation will be limited to people based on division of labour, financial contribution to the business, or financial risk. I’m not sure how you quantify that…
Capital Gains Exemption – There are also proposed changes to the Capital Gains Exemption, including possibly limiting family members from using the exemption if they have outside jobs or are only on the farm part-time. Last time I checked, it takes money to buy a farm or ranch and having a job is a useful way to make money. If you’re penalized for having a job so you can afford to buy into an all-work-no-pay small business (oops, I meant “live the dream!”), what incentive is there at all?!
Family farms have always been sandwiched in that no-man’s-land between “operating as a business” and “doing it for the lifestyle.” These proposed changes satisfy neither philosophy, but if they do proceed, I’m worried there won’t be a future for family farming.
Review official document from Government of Canada – Department of Finance Tax Planning Using Private Corporations (Page 17 shows you where you can submit comments)
Tips on writing a letter to your Member of Parliament