It was certainly a challenging time for Alaina Lockhart to get promoted in the federal Liberal government.
Lockhart, the Member of Parliament for Fundy Royal, was recently appointed Parliamentary Secretary to the Minister of Small Business and Tourism.
She assumed her new duties in the midst of a contentious debate over proposed reforms on the ways incorporated businesses are taxed. As the public consultation phased came to a close, Huddle editor Mark Leger had a conversation with Lockhart about her own small business background and her views on the proposed changes. What follows is an edited and condensed portion of their conversation.
What is your small business background?
I am a classic entrepreneur. I owned a bridal shower (Lockhart’s Weddings and Special Occasions) for the last 14 years. I believe that I am a stereotypical small business owner.
How did you get into that business?
I was a human resources manager in a corporate environment, and I left that after I had my first child. I always had that entrepreneurial spirit and decided the timing was right to do that. At that point, I started looking for business opportunities. That opportunity was there so we went with it. It was a great learning curve on the front end. I had a really fulfilling experience and one I think is particularly important as I move forward in this career.
Do you still own that shop?
No, I had just sold the shop just this past summer actually. It was kind of like walking your child down the aisle. You like that guy. You know it’s the right thing to do. It was a little bit hard to let it go, but I am really pleased that I was able to grow a business that will continue on in the community.
My husband has an entrepreneurial spirit as well and selling wedding dresses wasn’t where he wanted to go. So we decided that it was his time [to do something else]. So I imagine we will stay in the business realm.
So you were a small business owner. How do you see [the proposed tax changes] from that point of view?
I think it’s important to look at this from the perspective of what the government is trying to do, which is to achieve tax fairness – also to remember that these changes are not focused on small businesses like the one I had. We recognize that these small businesses are the economic generators in our communities. We know that these people are working hard and many are continually investing in their businesses to grow and employ more people. That’s certainly something that the government wants to continue to support.
So what are you hearing on the ground in Fundy Royal? What kinds of concerns are they sharing with you about the proposed changes?
Over the last several weeks of this consultation phase, I have talked to many business owners, as well as their accountants and financial advisors. We walked through some of the concerns and some of the things that they aspire to do as business owners. What’s really been clear to me is that business owners do have hope for the future and they do want to continue to invest in their businesses and employ people. They want assurances from the government that we have heard that and that anything that moves forward will take that into consideration.
Do you have sympathy with some of the concerns you’re hearing about things like income sprinkling?
Currently, business owners are able to pay family members that are working in the business and that certainly would be something that could continue. What we’re doing now is suggesting that the same consideration should be made for the payment of dividends. So if there’s a family member that is being paid dividends that they too would need to be working in the business or have provided capital for the startup of the business. That seems like a reasonable argument and quite frankly most business owners I talk to do think that’s fair.
Is there a communication breakdown between the government and a lot of these business owners over what changes are going to affect them and how they’re going to affect them.
Any time that we take a look at the tax code it’s going to be very complex. Alongside talking with business owners, I’ve also concentrated on talking to accountants and financial advisors [about] those technical pieces. One thing I would not have known is there have been reasonableness rules in the Income Tax Act about the salaries and wages and they’ve been there for decades, so it’s not a new concept for CRA to be dealing with these things. But it’s hard to get those messages out to people.
And I just want to reiterate to you that this isn’t about talking at people. We want to listen to people and listen to their concerns so that we can make sure as a government that we do respond appropriately, and that there aren’t any unintended consequences. I want to assure business owners that they are being heard.
There does seem to be a strong feeling that the government’s mind is made up on these proposed changes. That feeling was certainly there at the recent Canadian Chamber of Commerce AGM in Fredericton. Are you encountering this yourself in your conversations with people?
Well, I think it is unfortunate that people may believe that decisions have been made. I was at the Chamber of Commerce meeting in Fredericton as well, and I think [Finance Minister Bill Morneau] was very clear that day that these are proposals. We know that they haven’t been tabled in the [House of Commons] at this point. And he certainly is open to listening to some of the concerns.
What he wants to make sure people understand is that the government is committed to a level of fairness in regards to tax reform, and that’s something that [the government] has been talking about. It’s what we were elected on and it’s something we’ve been talking about ever since. It really is a commitment to the middle class – which includes small business owners – to make sure that they do have enough to thrive and have the same opportunities as others.
Do you understand some of the concerns that Liberal MP Wayne Long has expressed? He has objected to some aspects of [the proposed reforms] based on what he’s hearing from constituents.
Wayne and I have been working side by side in our ridings and talking to business owners, hearing the same concerns. We both have chosen a way to communicate our support for the business owners. For me, that means staying at the table and talking through this, making sure that I use my voice as a Member of Parliament to voice those concerns. That approach is very consistent amongst all of my colleagues. We are fully taking advantage of this consultation period to talk amongst ourselves about the concerns we are hearing, and I’m working with my colleagues in government to make sure that they’re articulated well and understood.
I think we need to make sure that businesses have the opportunity to continue to grow and invest. We need to make sure that family businesses are able to continue and that there is a future for other family members that want to be involved in the business.
We need to make sure that business owners understand that these proposed changes are not targeted at small business. We are trying to achieve fairness and we do have high earners amongst our business owners, and what we’re trying to do is make sure that everybody is contributing to our tax system in the same way.
The original intent was to get wealthy Canadians paying enough taxes. Are you surprised this issue has touched the broader small business community that doesn’t fit that wealthy “one percent” people are always talking about?
One of the very interesting facts that has come forward is that of the 1.8 million privately controlled business corporations in Canada, 80 percent of the passive income is held by the richest 1.6 percent. When you’re looking at those types of facts and it becomes clear that it is about fairness, and it is about making sure that we use that passive investment and try to use that in our economy to spur on business growth. It becomes more clear what the objective is.
You still have small business owners saying “you’re going to punish me for holding money in these passive investment portfolios that I’m saving for future investments, that I’m saving for retirement, and you’re punishing me because I’m not investing that right away.” Do you think that concern will be addressed when the legislation is ultimately introduced?
Absolutely, in fact, the Minister has been clear that there is no intent to look at this retroactively. We are not going after nest-eggs that are there, nor the investment income that has been made on those. This is on a go-forward basis, and we need to make sure that message gets out there.
But on a go-forward basis, what if those entrepreneurs are saying, “I need to have that money sitting in those passive investment portfolios so that I can be prepared for a downturn; so that I can be prepared to make that investment when the right time comes along to make that investment in my company.”
That’s something I did experience as a business owner as well. You do need to have money in business for that active growth. And sometimes that includes downturns in the business. But at the end of the day, the business owner is looking at investing in their business and maintaining their business and growing their business, that is not the target of these proposals.
Do you think that ultimately small business owners may be surprised or heartened to learn that their fears were unfounded?
I would not say unfounded. This is a consultation period. There’s a proposal. This is exactly the time that we should be having these conversations. I think it’s important that the business owners have taken the opportunity to relay what is really important to them and what tools they need to continue to grow. From that perspective, I think they have been very articulate about that need. And that’s certainly the message that we’re talking about here in Ottawa.