As a business owner I look beyond just the profitability of the business. Let's say after I pay myself a $70,000/year salary I have $5000 leftover. You are correct, the new rules will not change my $5000 profit. My retirement plans took into account investing my profits from the business. My business is a mature business with lots of competition, so it is unlikely my business will grow that much. If I could find a job that paid $70,000/year with benefits, I'm actually worse off financially than running my own business (not to mention I'm working 60+ hours/week). Nobody in their right mind would take all the additional risk/work of owning a business unless there was a substantial incentive to do so. To make it an "even playing field" with the new rules, essentially takes away a significant incentive to a run a small business. Don't forget as a small business owner, I am making employer contributions to CPP/EI on behalf of the employee, we are also collecting/remitting GST/PST for the government for free. The new rules will also make tax-filing more complicated which will lead to higher accountant fees.
From my understanding, you are correct.
If a business is not even profitable in the first place, and has no viable prospect of becoming so, am I right to believe that the tax proposals will have zero impact on its operations and its viability?
For me personally, yes. I currently have 3 employees, and may look into hiring a 4th if possible so I can actually get some time off, but I am not looking into expanding further than this. Like I mentioned, my business is a mature business with minimal growth outlook. However, I do give my employees a raise/bonus every year. With the new passive income rules, there are ways I can adjust my investment strategy to mitigate this, but the additional paperwork is definitely not welcome. Also, with the current rules, my investments will grow larger over time, which allows the government to collect more total tax over my lifetime. But the government wants the money now because of their huge deficit.I'm looking for specifics here. I'm not familiar with all the ins-and-outs of the tax proposals so I'm open to being educated.
So I'd be right to think that the main implication for you is with regards to the taxation of "passive investment", and not with expansion, hiring and growth?
I'm all for tax fairness (although IMHO, we as Canadians are already paying too much tax). But if the government truly believes in tax fairness, then make sure everybody is being treated fairly. Do a royal commission on tax reform, why are you targeting just small business owners?
edit: the government keeps saying these new rules are to target the 2% of corporations that are holding the majority of the wealth, but in reality it is affecting all small businesses, that is why there is such a huge uproar. Also the fact that Morneau's/Trudeau's millions are not affected by the changes is pure hypocrisy when they keep preaching "tax fairness". http://business.financialpost.com/opini ... -you-cant I also believe that these new rules will yield significantly less revenue than the government believes but put added burden on small businesses.