N.B Financial Advisors Say Trudeau and Morneau Should Tax Entrepreneurs Fairly
SAINT JOHN – Bob Owens agrees with Finance Minister Bill Morneau and Prime Minister Justin Trudeau that the tax system needs to be reformed so that it’s fairer to all Canadians.
The CEO of Owens MacFadyen Group (OMG) just thinks the wrong group of taxpayers is being targetted. He says it’s small business owners who need to be treated more fairly not the “middle class” that Trudeau and Morneau claim to be fighting for in their proposed reforms to the way Canadian controlled private companies (CCPCs) are taxed.
OMG will be one of many companies and organizations presenting their views on the proposed tax reforms at the Senate committee public meetings being held November 22-23 in Saint John. OMG hosted a media briefing on its presentation at its uptown office November 21.
One reform in particular, Owens says, puts small business people in an unfair position compared to both publicly traded corporations – mostly large companies like RBC and Bombardier – and salaried employees.
The government is proposing to change the tax rates on “passive investment” income – money that a company saves for things like future expansions, downturns, new equipment or retirement savings. Each year, the first $50,000 of passive investment income will be taxed at 49 per cent to 55 per cent depending on the province. Anything above that would be taxed closer to 73 percent, according to a brief prepared by OMG.
Owens says the top corporate rate for publicly traded companies in Ontario, where most of the public companies are based, is 26.5 per cent. In his estimation, this is the appropriate level to tax all companies large and small, privately held and publicly traded.
“A private Canadian company pays a 53 percent [tax rate] in New Brunswick,” he said. “Public companies like the banks and Morneau Shepell … they pay 26.5 per cent with no cap. And so I don’t understand why – I’m a little guy – why I would pay twice as much as Royal Bank. [But] let me just say this … the right number is what they pay.
“We think we should pay the top corporate rate on investment income like public companies and foreign companies … That would give us more money to invest in the future and create jobs.”
Owens also said that small business people are being taxed more heavily on the money they earn compared to salaried employees with the same income. This runs counter to Trudeau and Morneau’s position that salaried employees are carrying a higher tax burden than their small business counterparts with comparable earnings.
As an example, Owens charts the Total Savings Assets of a salaried employee who makes $150,000 per year versus a business owner who receives $150,000 in dividends from the company.
There are unique financial advantages to be an employee or an owner, says Owens. An owner can do income splitting during working years that lowers the overall tax bill, but can’t do it in retirement. An employee can do income splitting in retirement and receives significant contributions to retirement savings in the form of CPP and pension plan payments.
In the numbers crunched by OMG, however, the employee comes out ahead in the end. The salaried employee has $3,498,274 in Total Savings Assets at 65 and still has $2.8-million at age 90. Under the old rules, the owner has $2,938,314 in Total Assets at 65 and $1.75-million at 90. Under the proposed rules, where income spitting in many cases won’t be permitted, the owner only has $1,926,995 at 65 and has run out of money by 81 years of age.
Owens says lowering the tax rate on that income to 26.5 percent would help address that inequity.
“It [would give company owners] the chance to get on equal footing with salaried people,” he says. “We could become equal to salaried people earning the same amount of money.”
It’s the fair thing to do, he says.
The Senate hearings are taking place November 22-23 at the Delta in Saint John. Consult the schedule for organizations and companies that are participating and the times they will be making presentations.
Earlier this fall, Huddle did a series of stories on how the proposed tax changes could affect business owners:
- Small Business People Aren’t All Millionaires ‘Rolling Around in Their Money’
- Medical Resident Faces Uncertain Future in N.B. With Proposed Tax Reforms
- How Proposed Tax Changes Threaten Family Businesses Like Crosby’s Molasses
- Why Some Small Business Owners Say Proposed Tax Changes Undervalue Women
- Green Imaging CEO Says Family Investors Treated Unfairly Under Proposed Tax Changes