FREDERICTON – Lindsay Bowman is an employee by day and an entrepreneur by night…and on lunch hours and weekends too, actually.
Bowan works at a full-time job in Fredericton and owns Bowman’s Pharmasave with her husband Paul, a pharmacist who works in the business full-time.
The Bowmans opened the pharmacy earlier this year, and as happens with most entrepreneurs it consumes most of their waking hours. Paul is full-time but Lindsay puts in countless hours on lunch breaks from her day-job and evenings and weekends too.
“On my lunch hours I deliver prescriptions, and on Saturdays, I work as a cashier,” she says. “I do all of the marketing and communications. I do all the back-end meetings with our accountants and our lawyers.
“Our entire lives changed nine months ago when we took on this business. Aside from discussing the logistics of running our house – who is going to walk the dogs, who is going to make dinner – the business is all we talk about. Every decision is 50/50.”
In addition to the hours she works in the business, she also invested her money to help get it started.
Lindsay is not complaining about the workload or the money; it’s what she signed on for. What she didn’t anticipate are the proposed changes to the way incorporated businesses are taxed – new rules she says would devalue the time and money she’s invested.
“When I give [my] own money from my own salary into our family’s corporation, the presumption by CRA would be that … I’m a tax cheat.
“I contributed my own money to that company as did my husband,” she says. “There’s going to be greater tax advantages for him than me because I’m the spouse in this situation and that’s not fair.”
Lindsay says the federal government’s assumption is that families are sprinkling income across individual members to pay less tax when some of those family members haven’t made actual contributions to the company.
To get around this, she says, the new rules would ask family members to pass a “reasonableness test” that would assess whether they truly made investments of time and money.
“I’m going to have to defend under this ‘reasonableness test’ that they have yet to define that my contribution to the company was, in fact, reasonable, and therefore that I could be taxed more appropriately,” she says.
Finance Minister Bill Morneau fully supports the idea of a “reasonableness test.” In a speech to the Annual General Meeting of the Canadian Chamber of Commerce last Saturday in Fredericton, he advanced his view that family members should only be paid if they can prove they did work in the family business.
People can be compensated if they are rightfully part of that business either through capital or through labour,” Morneau said to hundreds of small business owners at the Fredericton Convention Centre. “Why is there anything wrong with that being something that’s demonstrable?”
Lindsay was there for his speech and the question-and-answer session. A lawyer by background, she says it won’t be easy to establish a “reasonableness test.”
“This can easily take years in court hearings to determine what reasonableness is,” she said in an interview after the event. “During that time, I won’t receive any return on investment. My contribution to the company won’t count.”
In her case, Lindsay works in the business itself, but the new rules will be especially hard on businesses where a spouse puts in long hours alone at home so the other spouse can put in long hours at work.
She provides the example of a plumber who has incorporated himself and does house calls in the middle of the night that are more lucrative.
He can only do that because he has a spouse at home who is going to provide childcare and they wouldn’t be able to get a babysitter,” she says. “Does [her] contribution count or not?”
The answer is most likely “no” if the view Morneau expressed on Saturday in Fredericton is the prevailing one. Morneau says he’s mainly concerned that some people were incorporating just to get the tax advantages from income sprinkling. Lindsay says we should be paying more attention to quantifying the value of the work done by stay-at-home parents.
She says Canadian society “undervalues” the contributions of spouses who stay at home – most of whom are still women. It’s an issue that transcends the debate over whether or not business owners should be allowed to engage in income-sprinkling throughout their families, she says.
“I think there’s probably a greater conversation to have in this country about the undervaluing of the labour of women,” she says. “Caregiving is appreciated in this country but it’s certainly not valued. That’s something we need to have a larger conversation about.
“In this particular circumstance, I really think a lot of this resentment and this anger around income-sprinkling process is based on these assumptions that the contribution doesn’t count.”
This is part of a series of stories Huddle is doing on how the proposed tax changes could affect business owners: