Businesses grit teeth at Liberals’ broken promise

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Local tax expert says tax cut for small business worse for economy than idividual owners

As business leaders and politicians decry the Liberal government’s broken campaign promise to cut the small business tax rate, one local tax expert says the effects of a tax break would have been minimal.

Rather than continue the decrease towards the pledged nine per cent, the federal government froze the small business tax rate at 10.5 per cent on the first $500,000 of active business income during last Tuesday’s budget announcement.

“The small business organizations are furious about this budget,” said Sturgeon River Parkland MP and interim Conservative leader Rona Ambrose.

The Canadian Federation of Independent Businesses called the move “as close as you can come to a betrayal as is humanly possible.” Speaking to media after the budget was released, president Dan Kelly said it also went against the Liberals’ narrative of looking out or the middle-class.

Many small to medium-size business owners are middle-class Canadians who will forfeit millions in earnings without the promised cuts, said Kelly.

St. Albert Chamber of Commerce chair Ken Macrae, who owns and operates an accounting firm that focuses on small business and non-profit organizations, said the cuts wouldn’t have resulted in individual business owners pocketing much more money, but a reduced rate could have helped the Liberals in their efforts to stimulate the economy.

“When you’re talking about tax rates for businesses, and especially small businesses, the system is integrated so that when a small business corporation, such as mine, or the local grocery store, is paying out the profits to the owners, they pay additional tax in the form of a tax on dividends,” explained Macrae.

Many small business owners pay themselves a dividend rather than a salary. Since dividend tax credits are tied in to the tax rate paid by a company, it is highly likely that a reduction in small business tax rates would have come hand in hand with increased dividend taxes.

“At the end of the day the amount of money that I was going to be left with was not going to change. They were going to tax my business less, but they were going to tax me more when I take it out,” said Macrae.

Where the reduced tax rates would have made a difference, said Macrae, is for a business owner looking to reinvest profits.

“Maybe he had a building to pay for, maybe he had equipment to pay for,” said Macrae. “He would have less tax and because he’s not taking it out personally, he would have had more money.”

In that regard lowering taxes could have spurred job creation, if profits were used to invest in expansion or construction projects.

The Liberal budget has also been criticized for a lack of vision in getting thousands of unemployed workers back into the workforce at a time when Canada is facing a three-year unemployment high and half a million Canadians are receiving EI benefits.

“There was nothing in the budget for those people who have recently lost their jobs, instead what we see is a tax increase on job creators,” said St. Albert MP Michael Cooper.

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Michelle Ferguson