The federal government's recent small business tax proposal is punitive and will have damaging effects on business communities in New Brunswick and across the country, Fredericton's Chamber of Commerce CEO says.

In early July, the government proposed sweeping tax changes for small business, saying it wanted to close loopholes that allow wealthy Canadians to avoid higher tax rates.

Finance Minister Bill Morneau said the changes would lessen what's called "income sprinkling," which allows business owners to distribute money to family members who earn less, allowing income to be taxed at a lower rate.

But Krista Ross argued the latest proposal is unfair to small business, whose employees are the "backbone to the economy."

"It's not fair to small business owners, it's simply not fair really, to the people of this country," she said.

Ross said the mechanisms government has provided for businesses to manage their finances are not loopholes but laws that have been in place since the 1970s.

Fears for succession planning

She said this would also have an impact on succession planning, adding 20 per cent more tax if a small business owner were to sell the business to a family member or at arm's length.

"How is that fair?" Most families are trying to find a family member to groom or take over or purchase the business from them," she said. "Who better to trust, who better to mentor?"

'People are so scared in thinking, 'Why would I want to run a small business, when we're basically going to be taxed out of existence?'' - Krista Ross

She said investment income would also be taxed at 70 per cent.

"Small business owners don't have maternity leave, unemployment insurance, health plans, so they put money away and save it," she said. "Basically, they're telling you take all your money out of your business and then if you have a problem what are you going to do?"

Both Morneau and Prime Minister Justin Trudeau have said the proposal would grow the middle class and those who want to join it, she said.

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Prime Minister Justin Trudeau defends proposal for Liberal tax plan for small businesses. (Darryl Dyck/Canadian Press)

"Small business owners, they are the middle class," Ross said. "Not only are they the middle class, they employ the middle class."  

During the consultation phase, Premier Brian Gallant said the provincial government has been passing many concerns, comments and suggestions on to the federal government on the proposed tax reform.

"That's one of the best things we can do," Gallant said.

Not all against, premier suggests

"I have to say, though, there are some people that are in favour or would add some tweaks that they would propose."

Ross, who was immediately alerted of the proposal in mid-July when it was first announced, said business leaders across the country are speaking out against the proposal. Since then, the chamber has received phone calls, texts, emails and people coming in, asking what will happen to their business.

As a result, the chamber has established a campaign where they can email a their member of Parliament to share with both the minister of Finance and Prime Minister, their concerns.

Ross said the piece of legislation being proposed is so damaging to small businesses, accounting firms and legal firms saying sales of business are already falling through.

"People are so scared in thinking, 'Why would I want to run a small business, when we're basically going to be taxed out of existence?'" she said.

Ross's group is asking the government, both at the municipal, provincial and federal levels, to slow down their 75-day consultation plan.

She said the last time taxes changed in this way was in the 1970s, and it took six years to complete consultation and the implementation of changes.  

Or, don't do it all.

"This is going to so unfairly penalize small businesses," Ross said.

With files from Information Morning Fredericton