Tax tweaks not enough to erase concerns for P.E.I small businesses

P.E.I. small business advocates are still unimpressed with the federal government's latest changes to its proposed controversial tax reforms.

Bill Morneau announced concessions to federal tax changes on Wednesday after initial backlash

Minister of Finance Bill Morneau responds during question period in the House of Commons. Finance Canada unveiled new 'clarifications' to its proposed small business tax changes Wednesday. (Sean Kilpatrick/Canadian Press)

P.E.I. small business advocates are still unimpressed with the federal government's latest changes to its proposed controversial tax reforms.

Federal Finance Minister Bill Morneau outlined an update to the government's proposed tax changes for small businesses on Wednesday. The changes were viewed as concessions to small business owners after there was severe backlash to the initial tax change announcement in July.

Erin McGrath-Gaudet, the P.E.I. director for the Canadian Federation of Independent Business, acknowledged that some of the changes have addressed their concerns but overall, the lack of clarity, the "substantial red tape" and the speedy timeline are not good for Island businesses.

She noted the changes regarding income sprinkling would affect roughly 70 per cent of the federation's members.

"This is adding a lot of red tape to get at what they suspect would be about three per cent of small businesses being caught in this category," McGrath-Gaudet said.

"From my perspective, the biggest concern is going to be that this is pretty subjective. Some of these exemptions are fairly clear, but even then there's still the option to go through a reasonableness test, which is subjective, it's CRA employees who judge what's a meaningful contribution to a business."

Rory Francis, president of the Greater Charlottetown Area Chamber of Commerce, said the "devil's in the details" when it comes to tax reform and who the changes affect and how, and noting that no economic impact studies have been done.

"I'm not sure anybody really understands what the implications will be for higher taxation on professional services, is that going to drive up consumer costs?" Francis said. "That should be a concern to governments, but in the absence of knowing that, we're still flying blind."

Too much, too fast?

A Senate committee recommended scrapping the plan or at least delaying it to January 2019 to allow time for businesses to prepare for the changes.

"To expect these provisions to come into place by January 1, 2018, that's just really not enough time for the affected businesses to understand the legislation and what it's going to mean and, in some cases, restructure their businesses to comply," Francis said.

He said he would be lobbying the government to delay the changes for one tax year, until 2019.

McGrath-Gaudet echoed those sentiments, saying 2.5 weeks' notice is not enough time for businesses to figure out if and how they might be impacted by the changes.

"This isn't a simple rate change, these are changing the entire structure of the tax system as it relates to income splitting, so it does take us some time to really dig in with professionals in these fields to really understand what it means and who will be impacted and how they'll be impacted."

With files from Laura Chapin