The following letter was written by FL Fuller Landau’s Managing Partner Michael Newton and sent to The Honorable William “Bill” Francis Morneau, Minister of Finance, and to The Honorable Marc Garneau, Member of Parliament for Notre-Dame-de-Grâce – Wesmount, in response to the proposed federal tax changes.
I write to you in my capacity as business owner – a Canadian-owned CPA and professional services Firm in Montreal – and not in my capacity as a professional.
As a business owner who employs 110 people (and their families!), my desire to communicate my discontent with your proposed tax changes of July 18, 2017 comes not from the effects on our firm’s services, but rather on the implications to our team, their families and the thousands of business owners who are our clients.
In a time where the middle class is at its weakest in decades, your proposed changes that are designated to punish the “wealthy” have massive implications on the middle-class and upper middle-class business owners in Canada.
Should our tax system be adjusted and modified to meet the changing needs of our society, our rising social costs and the protection of our Canadian way of life? Of course! No one contests that.
Should it be modified in such a way as to discourage investment and risk-taking as a business owner? Definitely not!
Your proposed changes to our tax system hit at the heart of our Canadian business owners’ existence – wealth creation (read: risk premium), autonomy from the ‘state’ for themselves and their families – now and in the future – (read: decreased social costs), and transition of family business ownership to the next generation (read: continuity).
Let me explain.
Wealth creation is vital not only to a better way of life for our families as business owners, but also vital to the employment of others (and their families) and our communities. Taxing wealth creation not only limits the business owner’s active re-investment into his/her daily business, but decreases investment in their community and their country, and also negatively affects the empowerment students & workers gain from education and training to improve their technical and life skills that we provide on the job. More tax means less creation of mentorship programs, on-the job training and giving back to the communities (either in dollars or in time). Families with a certain standard of living are unlikely to cut their lifestyles if there are to remain fewer after tax dollars in their families’ pockets. However, they are more apt to cut ‘non-essential’ programs in their businesses (like the ones discussed above), creating a long-term vacuum in talent and expertise, and inevitably an under-skilled, under-competitive workforce on an international scale.
If the cost of tax is such that it is the choice of my family (as business owner) over someone else’s family (the employee – employee training, increased job creation, etc…), most business owners will choose the former…at the expense of the latter.
Wealth creation should not be shunned, nor looked upon as ‘evil’ by our society and our tax authorities, as has been the case in the media for some time now. Bashing the “1%” has become a full-time job for some.
However, I am not even writing you to discuss the so-called “1”, but rather the back-bone of our economy. Incentives to take risk to invest, re-invest, acquire, train, mentor must not be cut, but rather fostered in a world where our next generation is already likely to be the 1st generation in many to be poorer than their parents. Undoubtedly, quality of life is not measured in dollars and cents, but as my father expressed to me time and time again, money means nothing until you need it.
Many of our early 20-something university students and late teenagers looking to the future are already in massive states of anxiety towards the future. Mental health issues will be the largest cause of work-place absence in the near future (if it isn’t already!!) requiring employers and business owners to ‘foot the bill’ for lost productivity and soaring social and insurance costs associated with mental illness.
How is this relevant? Being the parent of a 20-year-old Media/art/film student at College, and 22-year-old university student (registered nurse doing a bachelor’s degree in Nursing), I am exposed first hand to anxiety, stress and uncertainty that my children, their friends and their classmates are dealing with daily. Some may say that this has not changed since the previous generations, and chalk it up to teenage angst, growing pains and the uncertainty of adulthood.
Partially, this is true. However, the sense of desperation and negativity associated with the rising cost of social programs, the fears of immigration, world politics, global economic pressures, an already heavily burdened tax payer and a country already prone to losing ‘home grown’ talent – skilled workers and intellectuals by way of foreign enticements (including lower taxes, better technology and investment incentives elsewhere). All of the above has them wondering whether they have a future in Canada – and that was long before the current proposals that you will put forth will de-incentivize the future business establishment, growth and re-investment – remember that heavily taxing passive investment income in order to ‘redistribute’ it means these already risk inclined entrepreneurs will have less money to re-invest in other projects, their children’s businesses, etc…
And yes, there IS a direct correlation between these 2 items:
- Entrepreneurs are usually ‘serial’ entrepreneurs – they invest, build, sell, re-invest, build, sell and the cycle continues;
- High taxation on transition to family or employees (MBO’s) results in more sales of Canadian businesses to foreign 3rd parties, crushing Canadian-owned entities, ownership, investment and a ‘Canadian business cycle’ for which we have so long depended upon to support our world-renowned social programs.
Transition – something I can fervently speak of with passion, conviction and expertise. This is the lifeblood to not only my professional career, but also the process by which my business partners and I acquired this Firm in the late 1990’s from the founding partners of this Firm. Something that we have already begun with the next generation of 30-something business owners – assuming we don’t lose them to the ‘safety of employment’. My client base is family business. My life has been family business from the time I started working for my father in a small family business in the mid-80’s, my friends run family businesses. THIS is what drives our communities, our provinces and our country.
Crush these incentives (by increasing taxes) and you will have short term gain (immediate cash flow) for long-term pain (lack of re-investment and increased selling of existing Canadian businesses not to the next generation, but rather another country).
I could spend hours on the effects of the proposed tax changes, as well as the intricacies of your proposed plans, but that has already been addressed to you by other professionals looking to protect their professions and their livelihoods.
I wish to leave you with 3 main items to ponder – to remain at the forefront of this request for review – call it even a plea for Canadian business, investment and the future of our children’s passions, desires, drive and ambition:
- Preventing entrepreneurs from sharing income with dependent family members does not mean more money for others – it means less for their families, and thus more eventual reliance on the ‘state’ by these families;
- Dramatically increasing the taxes on business investment – either directly (net proceeds reduced on sale to remain to re-invest in another business) or indirectly (passive investment income earned from active business wealth creation and growth) DISCOURAGES investment – there should be a significant risk premium (reward) for an entrepreneur and his/her family over an employed worker who has relied upon the safety of a paycheck over the risk of tomorrow’s customer collection of the goods he/she sold 30 days ago;
- Making it harder for entrepreneurs to pass along their businesses to other Canadian investors or family members (when they retire) will necessitate these entrepreneurs to look elsewhere for more ‘gross sales proceeds’ in order to secure the net “in their pocket” dollars they had in the existing tax system
Looking at the proposal, it appears to be more politically motivated than long-term economically motivated – this country is the best in the world. My job as a business owner is to ensure employment, growth, increased talent pool and a contribution to our community and our country. Your job, Mr. Minister, is to ensure that we don’t bow to political pressures of the not-so-entrepreneurially-inclined that will cost this country its independence and culture that we and our forefathers have fought to create and preserve over 150 years – there is a balance between the entrepreneurial spirit, risk-taking, social welfare and those that wish to be lead (not lead themselves) …
…but I am afraid this proposal is not it.
I respectfully request that you rescind the crushing proposals on our entrepreneurial spirit.
Michael D. Newton
Managing Partner & Business Owner
Share your opinion
Until October 2, 2017, stakeholders—including the affected business communities, provincial and territorial governments, tax advisors, commentators and other Canadians concerned about the fairness of Canada’s income tax system—are encouraged to share their views and ideas about the proposals to address the tax planning strategies.