Surrey – The Federal government is persisting in moving forward with changes that target small to medium sized businesses in the Canadian-controlled Private Corporation category. These are entrepreneurs who fuel Canada’s economy and provide employment in local communities. The Surrey Board of Trade calls for the government to delay implementation in order to give them time to adjust to the new rules, as two weeks is insufficient.
“It is extremely disappointing that the Federal Government is not fully considering the implications of their decisions,” said Anita Huberman, CEO of the Surrey Board of Trade. “In the same week as they announce their modified tax changes, the report of the Standing Senate Committee on National Finance is released indicating also that the federal government needs to axe their tax changes. Further, in November the Auditor General released a report that found serious flaws with the CRA, the body that is to be engaging in a reasonability test for business. Something is not adding up here.”
The Surrey Board of Trade made a presentation to the Senate Committee in early November. The Report’s recommendations are in line with SBOT’s statements—from page 7 “Summary”:
1. While the Minister of Finance amended his proposals in October 2017, which many witnesses called positive steps forward, the evidence presented to our committee demonstrates that many problematic elements remain.
2. For example, the income sprinkling proposal will be complicated to apply, require significant paperwork, and rely on the subjective determination of tax auditors, inevitably leading to inconsistency and litigation. It also would not recognize legitimate income splitting based on implied joint ownership of family property.
3. The passive income proposal is based on a one-size-fits-all approach, which would constrain the growth of small businesses and the regular operations of medium and large businesses. It would encourage businesses to take funds out of their corporation and create an uneven playing field with public corporations and non-Canadian controlled corporations….
4. Many witnesses were concerned that the proposals could undermine Canada’s competitiveness, resulting in less investment and less employment. At the very least, they have led to considerable uncertainty in the business community, and investment decisions have been put on hold.
5. For these reasons, most witnesses told our committee that the proposed changes should be withdrawn in their entirety. We are inclined to agree. We are not convinced that the government has made a good case for its proposals. [emphasis theirs]
The Report further echoes what the Surrey Board of Trade, along with many others have strongly recommended, in that:
…we need an independent comprehensive review of our tax system to ensure that it is not overly complex, maintains our economic competitiveness and is fair to all Canadians. (page 7)
The modified changes from this week’s announcement rolls back the capital tax rules and the passive investment changes. As well, the government stipulated who is /is not excluded from the subjective “means test” when it comes to family contributions to the business. These are explained in about 20 pages of the government’s explanatory notes.
“The challenge is how to truly define the work and investment that families ‘meaningfully’ contribute to a business, whether a spouse over 65 or adult children who have made ‘substantial labour contributions’,” said Huberman. “This is left to the Canada Revenue Agency to determine, which, as the Auditor General recently pointed out, has a lot of work to do to be able to do their work to a reasonable standard themselves.”
The Auditor General released a report on the CRA Call Centres on November 2, 2017. The findings are less than comforting to those who have taxing problems with their returns (page 5):
2.10 Overall, we found that the Canada Revenue Agency gave taxpayers very limited access to its call centre services, including both the automated self-service system and call centre agents.
2.11 We found that the Agency blocked more than half of the calls it received (about 29 million out of 53.5 million) because it could not handle the volume. Blocked calls were those that did not reach either an agent or the automated self-service system. Instead, they were given either a busy signal or a message to go to the website or call back later. This means that each caller made an average of three or four call attempts per week. Even after several attempts, some callers did not always reach an agent or the automated self-service system.
2.12 This finding matters because taxpayers need timely access to accurate information to help them prepare their tax returns and to ensure that their benefits are correct. For callers who do not have Internet access, the call centres may be the only way for them to ask for information.
Further, The CRA’s “aging call centre technology” is being replaced through 2018, which will allow better response times and queuing abilities. The transition won’t be complete until the end of 2018. The Auditor General reported that up to 40% of callers said they were unable to find the information they required on the website (page 12) and that there was a spike of unanswered calls coinciding with tax changes in the 2015-16 fiscal year (page 10).
“Considering what the Auditor General reported, what we have is the making of a perfect storm,” said Huberman. “Even simplified, these are still major tax changes for small and medium sized businesses to figure out and make adjustments in less than two weeks. And clearly, most will not be able to access an agent to help them, and even if they did, according to the Auditor General, about a third will be given the wrong information anyway. How does this make sense?”
A recent survey implemented by the Surrey Board of Trade found that the overall cost and time to comply with government regulations have increased in the last two years for over half of the respondents.
“When I add all this up,” concluded Huberman, “the government really does need to slow down and think things through. They need to fix their own agencies first before delving into how businesses operate; otherwise it will be a horrible impact on the economy as businesses trying to comply. They need to stop now, and complete a full, comprehensive review first as is recommended by the Senate committee and the entire Chamber network. Then, and only then, can they start working with businesses and be truly fair.”
Sources:
· https://sencanada.ca/content/sen/committee/421/NFFN/Reports/NFFN_Tax_Planning_24th_Report_e.pdf
· http://www.fin.gc.ca/drleg-apl/2017/ita-lir-1217-n-eng.pdf
For more information, contact Anne Peterson at 604-581-7130
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