Entrepreneurs would be forgiven for assuming that the 2019 federal budget—which showered $23 billion in new spending commitments across the country in this election year—would have offered something to improve their balance sheets or increase their competitiveness. It turns out that was wishful thinking.
Instead, Finance Minister Bill Morneau offered a budget designed to ease seniors’ financial anxieties and intended to appeal to Millennials eager to climb their way onto the property ladder in expensive urban markets such as Toronto and Vancouver. Owners of small and medium-sized businesses were given little to address their ongoing concerns, which range from over-regulation to excessive taxation and onerous compliance rules.
On the tax front, the best that can be said of this budget is that it didn’t include increases to personal or corporate tax rates—nor did it reduce them, but at this point entrepreneurs are likely taking a glass-half-full approach to budget day under the Trudeau Liberals.
Nor did Morneau make a commitment to reform our complex tax system, despite ongoing pleas from the business community to take action. On the subject of the intergenerational transfer of family businesses and assets —another entrepreneurial bone of contention—the government also opted to punt the decision to a later date, but says it’s continuing to look at making these transactions more financially beneficial for entrepreneur families hoping to keep their businesses alive by handing them off to children or other relatives.
One surprising announcement was a crackdown on employee stock options for higher-earning executives. Specifically, the government is proposing to eliminate the preferential tax treatment of employee stock options for benefit amounts of more than $200,000 for professionals employed by what the Department of Finance defines as ‘large, long-established, mature firms’ (what, exactly, qualifies as one of these larger organizations remains to be seen). The budget explains the government’s rationale thusly:
‘When examining the evidence, it is clear that the employee stock option deduction is highly regressive. In 2017, 2,330 individuals, each with a total annual income of over $1 million, claimed over $1.3 billion of employee stock option deductions. In total, these 2,330 individuals, representing 6 per cent of stock option deduction claimants, accounted for almost two-thirds of the entire cost of the deduction to taxpayers. The public policy rationale for preferential tax treatment of employee stock options is to support younger and growing Canadian businesses. The Government does not believe that employee stock options should be used as a tax-preferred method of compensation for executives of large, mature companies.’
Other proposed tax changes of significance to entrepreneurs include a broadening of the exclusion to the specified corporate income rules which impacted the small business deductions for certain farmers and fishers, a 100 per cent accelerated capital cost allowance rate for electric vehicles (including those used for commercial purposes) and some minor tax incentives to help Canadian news media compete in the digital age (for entrepreneurs worried about how they’ll continue to receive business news at a time when traditional media outlets are facing an uphill battle to compete against digital behemoths such as Facebook and Google).
Of course, that latter point isn’t necessarily of any specific importance to SME owners, and that underscores one of the biggest problems with this budget—there really isn’t much for entrepreneurs to be concerned with or to get excited about. Many in the business community are still wondering: ‘What’s in it for us?’ The answer, unfortunately, is ‘not much.’
What we can say is that the Canada Revenue Agency will receive an additional $150 million over five years to improve tax enforcement initiatives, including a further clampdown on foreign tax fraud. Again, not exactly reason for joy among Canada’s business-owning classes. To be fair to the government, promises have also been made to improve CRA customer service, including expediting dispute resolution timelines. This has been a major sore spot for business owners in recent years.
The bottom line is that the government will continue to run deficits of nearly $20 billion over the next two years, before those deficits slowly drop to $9.8 billion by 2023-24. A major concern is that economic headwinds could further slow economic growth in the near term and put additional strains on the country’s finances. Whether the Liberals will still be in power to steer us through those potentially stormy economic waters remains to be seen.
But if they are, we hope at some point for a budget that addresses the ongoing anxieties of Canada’s entrepreneurs—not only the voting cohorts whose support the government hopes to win over in the lead-up to this year’s election.
Armando Iannuzzi is a tax partner at KRP LLP, a Markham, Ont.-based accounting firm for entrepreneurs. Learn more at www.krp.ca