Federal tax change could hammer contractors
September 19, 2017
Many residential contractors exist as small independent businesses, making them vulnerable to higher taxation under new federal Finance Ministry proposals according to the Coalition for Small Business Tax Fairness—a group that represents 35 organizations, including those in the building trades.
The Coalition says the federal government’s tax proposals would dramatically and negatively change how incorporated small businesses are taxed in Canada. The proposals are currently being studied in a 75-day consultation period that started in August.
Three specific measures have been proposed:
• Reduce “income sprinkling” (passing income to family members through dividends or other lightly-taxed payments)
• Increase taxes on passive investments (investments not related to the business)
• Clamp down on the use of passing income through multiple corporations to transform regular income into lightly-taxed capital gains
There is also a proposal to place higher taxes on the transfer of a business to a family member.
A number of industry officials have raised concerns about the impacts on residential contractors.
“Small- and medium-sized businesses—many of which are also family-owned—make up the vast majority of home building and renovation companies. These entrepreneurs take significant financial risks to start their businesses and make them grow. The full impact of the proposed tax changes for private corporations will mean fewer small businesses will survive in our industry, fewer jobs will get created, and home prices will go up due to increased taxes and less competition. This is going to hurt the economy and our communities,” said Kevin Lee, CEO of the Canadian Home Builders’ Association.
The Coalition has written to Finance Minister Bill Morneau asking the government to dump the proposals and “instead meet with the business community to address any shortcomings in tax policy affecting private corporations.”