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“The large gap between the business tax rates and those for individuals is already the main driver of the tax avoidance the government is trying to address.” — Dennis Howlett, Executive Director of Canadians for Tax Fairness
Ottawa (17 Oct. 2017) — While Canadians for Tax Fairness welcomes the news that the government is going ahead with private corporation tax reforms, cutting the small business tax rate could cost more than the savings from closing the private corporation tax loophole. The cut in the tax rate to 9% for small businesses is also unlikely to do anything to boost jobs or the economy.
The lower small business tax rate, already the lowest in the G7, was costing taxpayers $3.6 billion a year. The new rate cut is estimated to cost an additional $1.6 billion a year. This is more than the estimated revenues from closing the private corporation loophole, leaving us further behind.
“The large gap between the business tax rates and those for individuals is already the main driver of the tax avoidance the government is trying to address,” said Dennis Howlett, Executive Director of Canadians for Tax Fairness. “There is little evidence that lower business tax rates are linked to job creation. Small businesses are paying half the taxes they paid in 2000, and there has been no employment growth in this sector to show for it.”
Tweaks to private corporations tax reforms announced this week sound reasonable
Canadians for Tax Fairness, and other groups in the Canadian Coalition for Tax Fairness, are pleased the government is moving forward with tax reforms to close the private corporation tax loopholes despite backlash from the opposition and vocal business lobby. The tweaks announced today seem reasonable and will help to target the highest-income earners and avoid unintended consequences for farmers or other small businesses who want to pass on their business to the next generation.
But the further cut to the small business tax rate is counter-productive. It would be better for the government to invest the $1.6 billion a year in expanding daycare, or public transit investments where the job and economic multiplier effects would be much greater.
Most private corporations have no employees
If the government is intent on going ahead with the small business tax rate reduction, it should target those businesses that employ 3 or more staff as has been done by the Quebec government.
“Less than half of the private corporations under $500,000 have any employees at all,” adds Howlett. “If this rate cut proceeds, it needs to be targeted to the small businesses that are actually creating jobs (3+ employees), like it was in Quebec, not providing boutique tax savings for business owners.”
Canadians for Tax Fairness is a national organization that advocates for a modern, effective and fair tax system.