Quebec shared concerns with feds over tax proposals, right from the start

FILE: Quebec (Photo By Government of Quebec(Vector graphics image by Krun) – SVG based on this file, Public Domain)

NEW YORK — Quebec wasted little time in making Ottawa aware “right from the start” about its concerns with the federal government’s proposed — and now hotly contested — tax reforms, the province’s finance minister said Tuesday.

Carlos Leitao told The Canadian Press that he agrees with the overall goals of the tax proposals, which Ottawa argues are designed to inject more fairness in the system for the so-called middle class.

But Leitao said he remains worried about the impact the changes could have on the agricultural sector, particularly when it comes to how the reform might complicate the transfer of farms within families.

“I think that merits some significant changes,” he said of proposed elements that could make it easier for farmers to sell their businesses to outsiders rather than passing them along to close relatives, like a son or daughter.

“That transfer is not being made to avoid taxes, that transfer is being made so that the business can stay in family hands.”

Quebec shared its concerns about the proposals with the Trudeau government as soon as federal Finance Minister Bill Morneau released the plan in mid-July, Leitao said.

Now, Quebec hopes the feds will adjust the farm-transfer part of its plan, a consultation period on which remains open until Monday.

“As it stands now, the federal proposal probably causes some confusion in (the agricultural) sector and, regarding small businesses, I think there’s also a bit of confusion,” Leitao said in New York after he appeared at an investors’ conference hosted by Bloomberg.

“Those things, I think, should be adjusted. And I think the federal government is open to coming with some amendments.”

Morneau has said he’s listening to feedback and that the Trudeau government has indeed signalled it is open to making changes, if necessary.

Earlier this week, Prime Minister Justin Trudeau said it’s not his intent to stifle growth for small businesses and start-ups with the tax proposals. Indeed, it’s important to encourage entrepreneurs and risk takers, he added.

The plan has been a tough sell for Trudeau and Morneau both.

The Liberal government has been engaged in a communications war over the reforms, which it has insisted would end tax advantages unfairly exploited by some wealthy business owners.

The proposals have been met by vocal opposition from numerous areas, including many small business owners, tech-sector players, tax planners and doctors.

They have argued the changes will add new costs for the middle class, a charge that is hotly disputed by Ottawa.

An organized movement has argued the tax incentives targeted by the Liberals are critical for Canada’s economically crucial small-business sector.

It insists the current tax structure is necessary for entrepreneurs, including those in the so-called middle class, who take personal financial risks when they decide to open a company.

The federal government has also felt growing pressure over the proposals from some of the provinces, including British Columbia, Manitoba, Nova Scotia and Newfoundland and Labrador.

On Tuesday, Ontario Finance Minister Charles Sousa said he understands what Morneau is trying to do with the tax proposals.

“Ultimately, what we want is fairness in the system,” said Sousa, who was taking part in the same New York conference.

Sousa declined to specify any concerns he has with the proposals and said it was up to Morneau to manage the consultation process.

He did note, however, that Ontario’s plan to gradually raise the minimum wage to $15 an hour by Jan. 1, 2019 will apply more financial pressure on companies in his province.

“We’re looking at ways to mitigate those costs, too,” he said.

The federal tax-reform package includes restrictions on the ability of business owners to reduce their tax rate by sprinkling their income to family members in lower tax brackets, even if those family members do not contribute to the company.

Morneau also proposed limits on the use of private corporations to make passive investments that are unrelated to the company. Another change would limit business owners’ ability to convert regular income of a corporation into capital gains, which are typically taxed at a lower rate.