Feds receive more warnings over tax proposals as public consultation closes

FILE: Bill Morneau, Canada’s Minister of Finance
(Photo from Morneau’s official Facebook page)

OTTAWA — With its public outreach winding down, the Trudeau government received fresh warnings Monday from major industry associations about the negative fallout from its controversial tax-reform proposals.

Business leaders sent new letters to Ottawa insisting the proposed tax changes, which the Liberals have said are aimed at creating more fairness in the system, will cause considerable collateral damage in the economy.

The latest criticisms of Ottawa’s plan to change tax rules for private corporations arrived as the government’s 75-day consultation period on the proposals approached its deadline late Monday.

Finance Minister Bill Morneau has tried to address the outrage by insisting the government has been listening to the feedback and will make adjustments, if necessary.

But concerns have continued to pour in from angry Canadians from many different backgrounds, including doctors, farmers, small-business owners and tax planners.

One new message came from a group representing some of the country’s fastest-growing technology companies and industry investors. The Council of Canadian Innovators argued the proposals would restrict the ability of tech entrepreneurs to access capital that’s vital to growing their companies and creating jobs.

“It is vital that before any decisions on this file are made, the federal government meets with Canadian innovators to discuss solutions that do not hurt Canada’s job and prosperity creators in the tech sector,” said the letter, signed by CEOs representing entrepreneurs, venture capitalists and angel investors.

“This is a race to the bottom and runs contrary to the government’s innovation and skills plan.”

The association said the changes, if implemented, would create uncertainty for corporate tax planning, intensify a brain drain of tech talent away from Canada and negatively affect Ottawa’s highly publicized investments to help high-potential firms scale up.

Canadian Manufacturers & Exporters, which represents more than 10,000 companies, also laid out its concerns in a letter sent Monday to Morneau that called the changes “significant, but flawed, piecemeal amendments.”

In the message, president Dennis Darby said the reforms would “strike well beyond their intended target” and could lead to “significant, negative, unintended consequences” for small manufacturers.

The changes, Darby added, would reduce the incentive and economic return from entrepreneurship, risk-taking, business investment and job creation. He also said the proposals would increase business costs, further complicate an already complex tax system and create new areas of unfairness.

The government has also come under increasing pressure to extend its consultation, a process that has itself been criticized for its midsummer launch during vacation season and for being too brief for such a complex set of changes.

Both groups urged the federal government to delay the consultation period in order to allow for a broader review of the tax system and to allow for more input from the private sector.

The opposition Conservatives have repeatedly attacked the Liberals over the proposals and said they intended to introduce a motion Tuesday that will call on the government to extend the consultation until Jan. 31, 2018.

“This tax is going to raise the cost of saving for retirement, preparing for maternity, setting aside money for a rainy day and it will make it next to impossible for farmers and family business owners to pass on their livelihood to the next generation,” Tory MP Pierre Poilievre said in an interview.

“Our hope is that there might be some fair-minded Liberals who will be comfortable in voting for this motion because they’re in agreement that there needs to be more consultation. We didn’t think we’d get government votes in favour of outright abolition … So, this is a middle ground.”

The government proposals include 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.

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

Morneau has pitched the changes as a necessary levelling of the playing field for all Canadians, particularly those in the so-called middle class, because they would end tax advantages unfairly exploited by some wealthy business owners.

The plan, however, has led to considerable outrage, pushing the Trudeau government into a difficult communications war. Vocal and often organized opponents have argued the changes would hurt Canadians at different income levels and from many different sectors.

“We are listening — we’ve heard things that we know are going to be important in our implementation,” Morneau said Monday during question period as he once again faced waves of questions about the proposals from opposition MPs.

“As we move forward, we’re going to get this right.”

He’s indicated that “technical fixes” may be in the works for a particularly contentious aspect of the reforms that could add significant costs for those who seek to keep their farms in the family.

Leaders in several provinces have also complained publicly about the possible consequences of the Liberal plan. On Tuesday, Morneau will discuss his plan with provincial and territorial premiers when they gather in Ottawa.