Survey: Majority of shops will be impacted by changes to ‘income sprinkling’

Those in favour of the proposed changes appear to be very rare among the readers who responded to our survey. In fact, the “No” answers to this question were above the number of readers who indicated they would be impacted by the proposed changes!

By Mike Davey

Hamilton, Ontario — September 19, 2017 — The vast majority of Canadian shop owners do not support the proposed changes to federal business taxes, according to the results of our latest survey. In brief, Federal Finance Minister Bill Morneau proposed three changes to taxation that will impact small businesses. Collision Repair magazine recently surveyed its readers on the proposed changes and how they could impact their businesses.

The change that seems most likely to impact on collision repair shops is the proposed curtailment of “income sprinkling,” a method by which business owners shift a portion of income to family members, either through salary or dividends. Morneau has stated that he plans to impose a “reasonableness” test so this does not punish legitimate family businesses. In theory, the test will determine just how much work a family member actually does at a business, and if they can really lay claim to profits. Official estimates from Finance Canada say that approximately 50,000 Canadian families will be affected by this change.

According to our survey, this change alone will impact at least 57 percent of our readers. An additional 14 percent of respondents indicated they were unsure if it would impact them. Finally, 29 percent indicated that it would not. 

Regardless of whether or not it will impact them personally, the majority of readers responding to our survey are not in favour of the proposed changes. A clear majority of 74 percent indicated they do not support the changes being proposed, with only 8 percent indicating that they were in favour. A further 18 percent hadn’t decided yet.

Many comments were received explaining reader’s rationale. As always, all comments are presented anonymously, and with only minor editing from us. A sample is provided:

“Who in their right mind would? WE ARE A SMALL BUSINESS, and already are not paid properly by the insurers for the immense amount of work we do over and above of repairing a vehicle.”

“Government already taxes too much. This will just heighten the underground economy.”

“’Income sprinkling’ sounds bad, and politicians calling it ‘a loophole’ makes it sound worse. The reality is that my wife makes great contributions to the overall success and health of this business due to her being a constant sounding board for me, assisting me in my personal and professional development (she was a social worker in her career), and raising the kids at home alone when my dedication to build our company caused me to miss nights and weekends. Different if I was an employee.”

Those in favour of the changes may be in the minority, but they have their reasons. We’ve presented a few of these below.

“Everyone should pay their fare share of taxes. Why should a business owner pay a spouse or relative if they don’t work in the business just to reduce the amount of tax he should pay? I don’t agree with the amount of government waste, but I do think we need to pay our share!”

“So taxes are applied fairly to all Canadians.”

“You should get paid for what you do , and if the big boys keep getting all the breaks, why do all us little guys have to keep doing more for less? If they make the big bucks, they should pay the tax on that.”

There is certainly something to be said for fairness. However, those on the “No” side of the aisle believe the changes to be inherently unfair. A few comments below are illustrative.

“We spent a whole life time structuring our companies to align with the future. These changes are a slap in the face to the small business owners that have no pension or guarantee of any type of retirement guarantees.”

“Small business takes on high risk that neither employees nor government have to be concerned about. We are not allowed EI and never insure ourselves for WCB (too expensive). No pensions. Our entire retirement is in the business and family members are crucial in helping out when employees have long since gone home to their families. They deserve to be paid and we deserve to be allowed to do so without more government regulations and red tape … Capital gains is already hard on small business as the owners have worked their entire life with sometimes very little compensation. Their entire retirement is in the sale of the business.”

“Owning a small business always involves support of all family members. It is a 24-hour, 7-day a week job that affects all family members. From interrupted family vacations to telephone calls around business hours, there are many sacrificed family events to running a small business. Even the mental support from family members is of some type of financial value. If my wife did not stay home to raise our three children, I would not have been successful and have the ability to pay business income taxes to the level we do. With this change it will force business to find other ways to distribute the funds to family, affecting tax collected by CRA.”

Consultation on the proposed changes is open until October 2, 2017. More information on how to take part in the consultation process can be found here.

Collision Repair magazine’s next survey takes a look at environmental sustainability. You can participate in that survey at this link, and watch collisionrepairmag.com next Wednesday for the results! Collision Repair magazine runs new surveys every week on different topics in the news. 


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