Canadian Manufacturing

Morneau hints at ‘technical fixes’ to small biz tax proposal

by Andy Blatchford, The Canadian Press   

Canadian Manufacturing
Financing Operations Regulation Small Business Food & Beverage Public Sector

The statement marks the first time Morneau has hinted at flexibility in the plan, which caused a backlash from angry business owners; Farmers say the proposed changes would tax families twice for passing down farms to their children

OTTAWA—Finance Minister Bill Morneau tried to reassure farmers Thursday that Ottawa’s controversial tax proposals, if introduced, wouldn’t impair their ability to bequeath the family farm to the next generation.

Morneau said Thursday that “technical fixes” for the federal proposals may be on the way amid concerns the reforms could add significant costs for those who seek to keep their farms in the family.

The minister was among more than a dozen witnesses testifying before a parliamentary committee that’s examining proposed tax changes for private corporations—measures that have subjected the Trudeau government to an onslaught of public and political outrage.

Opponents of the reforms insist the changes would hurt Canadians at different income levels and from many different sectors, including doctors, farmers and small business owners.

Farmers have raised particular concerns about elements of the proposed changes that some estimates say could see families taxed twice for inter-generational transfers of their operations.

“Our goal is not, and will not be, to change the ability to move a family business, a family farm, a fishing business from one generation to the next,” Morneau said after his appearance.

“There may be technical fixes to make sure that we get that right.”

Morneau also warned that critics are spreading misinformation about the proposed tax changes, particularly when it comes to how they might affect farmers.

The Liberal government has been engaged in a communications war over its plan, which it insists would end tax advantages unfairly exploited by some wealthy business owners.

Morneau argues the proposals are designed to create a fairer tax system, especially for those in the so-called middle class, but he says he’s open to adjusting it after a public consultation period ends next week.

The proposal package includes restrictions on the ability of business owners to reduce their tax rate by sprinkling their income to family members in lower tax brackets, even if those family members do not contribute to the company.

Morneau has also proposed limits on the use of private corporations to make passive investments that are unrelated to the company. Another change would limit the ability of business owners to convert regular income of a corporation into capital gains, which are typically taxed at a lower rate.

Critics of the plan say it would hurt entrepreneurs who take personal financial risks when they decide to open a business, hire staff, save for retirement, save for maternity leave and sock away funds for economic downturns.

They contend that the proposals, if legislated, will also deliver a blow to the bottom lines of not just the wealthy, but of middle-income earners as well.

The committee heard from an apple farmer who urged the government to shield farms from the tax changes so they don’t end up as “collateral damage.”

“I need to plan succession—I need to do this in advance to ensure my farm stays within my family,” said Andrew Lovell, who added that he also relies on his sometimes-volatile farming business as a savings vehicle for his retirement.

“This year we had a drought in New Brunswick—I’m facing huge crop losses. How do I plan for Mother Nature?”

Morneau faced sharp criticism from political opponents Thursday over his tax proposals both inside and outside the committee room.

One rival noted after the hearing that Morneau appears to bending to pressure amid a backlash from angry business owners, several provincial leaders and even public concerns voiced by backbench Liberal MPs.

“The result is, I think that he’s looking for an off-ramp for some of these proposals,” Conservative MP Pierre Poilievre said after the meeting.

“The reason that people are so fearful is because these tax changes not only reach into their pockets, they mess up people’s lives.”

On the farmer-succession issue, New Democrat MP Alexandre Boulerice said: “I hope he will do the right thing because there’s a lot of fear right now.”

Later, during question period, Tory MPs attacked Morneau for not abstaining from the discussions around the tax changes, which they allege could end up benefiting his family’s company, Morneau Shepell.

Before entering politics, Morneau was executive chairman of the company, which is the country’s largest human resources consulting firm. Morneau Shepell also offers individual pension plans.

Some Tories referred to committee testimony earlier in the day by James Merrigan, a corporate lawyer from Newfoundland and Labrador.

Merrigan told the committee that individual pension plans, such as those offered by Morneau Shepell, would become more appealing options for some of his clients if the tax proposals are implemented as is.

There would be “a lot of money poured into that area,” he added.

For the most part, Morneau didn’t directly respond to questions in the House about a potential conflict of interest related to his family’s company.

He did reply to one by saying: “Not only did I not abstain, but I actively engaged in working to make sure the tax system is fair.”


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