For people who have never been middle class in their entire lives, our Prime Minister and his pal Bill Morneau sure like to talk a good game. First, there was the 2015 election, wherein our would-be Prime Minister accused the Conservatives of being a party for the 1%, promising “sunny ways” and middle class tax relief. Then, just as Canadians were thinking that this guy had the slightest admiration for the middle class, Justin Trudeau’s government slashed Harper’s tax reliefs for families with kids in fine-arts and sports, a tax relief that many middle-class families counted on to make life more affordable. Along with eliminating the Child Fitness Tax Credit and the Children’s Art Tax Credit, the Trudeau government opted to eliminate income splitting for families under the Income Tax Act, which allowed families (and many seniors) the opportunity to fall to a lower tax bracket, ultimately keeping more money in their pocket. So far, all I am seeing is un-doing the Harper legacy of empowering families. So far, it looks like another case of the government insisting that it knows best what to do with your family’s funds– but that’s just me.

Now, the Liberals have decided to go after small-businesses. Finance Minister, Bill Morneau, announced that the federal government would be making major changes to the way that Canadian Small Businesses file their income tax. The Finance Minister referred to these changes as a step toward closing loopholes for the rich and wealthy, however, I think that this rationale does nothing more than demonstrate just how out of touch this minister is with the small business sector — and his middle-class, in particular. Acknowledging that there are a plethora of issues that economists, accountants and others have taken with this new plan, I have decided to highlight those that stand out to me, first and foremost.

The attitude that Morneau has toward the small business sector is particularly concerning.

The industry definition of a small business is one that employs fewer than 100 employees. In my family, the two “small businesses” that come to my mind are my Dad’s welding company and my Aunt and Uncle’s restaurant (FYI: if you haven’t tasted the food here, and you are in the Medicine Hat area, you are seriously missing out). Mr. Morneau has created this false narrative that small business owners are members of the bourgeoisie, sitting on their fat stacks of cash, looking for a way to bend the rules without breaking them to avoid paying their taxes while  idolizing the likes of Machiavelli, searching for the best way to screw over the little guy. This narrative is demonstrably false.

Small business owners are people like my parents, and my aunt and uncle, who contribute to Canada’s economy by providing services, resources and jobs. Their goal is to be prosperous but first they have to take care of their own. For my dad, this means working 12+ hour days in undesirable conditions to make sure that his daughters’ university is paid for, his wife can take time off and have a break, and the roof over his head stays standing. For my aunt and uncle this means employing dozens of people, providing a delicious service to Southern Alberta and paying for their retirement. The “loopholes” to which Morneau refers, made the above easier and served as incentives for working hard and maintaining Canada’s entrepreneurial economy.

While income splitting may not be used by everyone, taking it away helps nobody.

Income splitting is a means of redistributing income amongst family members to lower a small business’ marginal tax rate. Under the Harper government, this was used freely as it benefitted Canadians. This allowed families where one spouse, or business owner for the sake of consistency, who was bringing home more than their spouse to transfer that income to their spouse. This recognized the risk that families take together when operating a small business. It was a show of support from the government and a relief (read: reward) for families.

Now, Mr. Morneau thinks that, in order to receive an “income” from the small business, you need to “meaningfully” contribute capital or labour, directly. I don’t know about Mr. Morneau’s house, but in my house, the work that my dad does would not have been possible had my mom not taken a break to take care of our home and my sister and I. Further, what does he define as meaningful labour and capital contributions? My mom does all of the bookkeeping for my dad, although she is not a “book keeper” per se, this gives my parents the opportunity to save costs in other ways, maximizing their efficiency. Why should she not receive financial benefit even if it is just by way of a tax relief? In addition to taking care of our home, my mom has always been the one to take on the administrative tasks for my dad like paying bills, making sure incorporation licenses are up to date, filing safety tickets etc. As for children, small business owners used to be able to split income onto them as well. This tax strategy allowed for further decreases in marginal tax rate and allowed children to receive dividends from their parents’ small business. When operating a small business, the hours aren’t set and life can be hectic. The moral of the story here is that operating a small business is a family affair, a team effort, and those who take the risks and are profitable should be allowed to celebrate that without the government’s overreach.

Starting a small business isn’t a way to avoid personal income tax, but the Finance Minister seems to think so.

The fact of the matter is that small business owners not only pay other people to work for them, thus contributing to the economy and making it so that Canadians are looked after, they actually pay double the taxes of the average person –both corporate and personal income tax.

In addition to the risks that one takes in starting a small business, these small business owners do not get to enjoy the many benefits given to their employees. For example: my aunt and uncle’s restaurant employs dozens of people in Medicine Hat. They are responsible for EI and CPP contributions as well as ensuring that vacations are paid out appropriately, among other things. When a small business owner pays themselves an income, they are not adding in vacation pay and all of the other perks of  regular employment, they are giving themselves a dividend, but not too much, to ensure that their business stays afloat. The business owner always comes last. To this point, it is estimated that many small business owners actually take home less of an income than some of the people they employ due to tax rates and economic restrictions.   

There are unintended consequences, and targets, of this plan.

Earlier I had made reference to children and families and how they will be affected by this government’s plan for small business but what I didn’t highlight is the types of businesses that this could hurt. The issue has been raised that farmers, especially family farms, will be notably impacted by these changes, given that approximately 25% of Canadian family farms are registered as corporations. In the past, incorporation has made it easier for families to get involved in the business end of things, thus making it easier to pass along the farm to future generations. Some have suggested that the succession of family farms will become more difficult, due to these changes, and make it so that selling to a 3rd party becomes more economically viable, rather than passing the farm to an up-and-comer in the family.

Farmers are justifiably angry with these changes –and they should be. There is also concern that the 75 day consultation period falls in harvest which is (obviously) an extremely busy time of year for those that Mr. Morneau is “trying” consult. If there is one piece of advice that anyone can learn from the Alberta NDP, and one that I would suggest Mr. Morneau take into consideration: farmers are not a good group to have on your bad side. Take, for example, Bill 6 introduced by the Notley government in 2015 as your example of what not to do to the people that feed you — it generally doesn’t end well.

So, what can you do to stop these changes?

While not all of us can attend a consultation meeting on this tax, or stand up in the House of Commons and tell Mr. Morneau how out of touch he is with the average Canadian, we all have the ability to write to our MP’s demanding advocacy on this issue. For me, I will be sending a copy of this post to my Conservative MP, Glen Motz (Medicine Hat-Cardston-Warner) as a testament to my personal commitment to hold the Liberals to account. If you want to get involved, write to your MP, or sign the petition created by Michelle Rempel, Conservative MP for Calgary Nose Hill.