Being a politician means you need to be a marketer. This isn’t new, but don’t treat people like children – you’re doing yourself a disservice.
The Liberal Tax Update Delivery Strategy
Step 1 – Let’s not tell them what we’re going to do all in one shot. Let’s stagger it over a few days. Let’s give them the good news first, that way when we present the bad news, it will soften the blow.
First Problem – Monday’s “good news” of a gradual reduction in the small business rate from 10.5% to 9% is not news. This was one of the promises the Liberals made to get elected in the first place but was presented as an amendment recently made to show the government is “listening”.
Step 2 – Let’s wait till Wednesday to deliver the second bit of news so that they have some time to appreciate Monday’s “good news”.
Step 3 – When we present our plan on passive investment tax treatment, let’s emphasize that it will only affect 3% of business owners. We will keep it simple and other than stating that no tax change will be made on the first $50,000 of passive income, we won’t offer any other detail.
Problem – Mr. Morneau, you’ve given us one piece of information which begs many questions you haven’t provided answers to. Perhaps because you don’t have the answers yourself and/or because you know that those answers aren’t what people want to hear. You gave the example of a 5% interest payment on $1 million, stating that this 50K profit would not be subject to the higher 73% tax rate, implying that unless you have $1 million in a corporately held account, you wouldn’t be affected by the change.
But what happens to business owners who don’t invest in interest bearing investments and generate capital gains in the 8-10% range? Does this mean that even business owners with accounts under $1 million would be affected? And what happens when the account grows due to investment? Are we going to penalize business owners for trying to seek good returns in their accounts? And how about unrealized capital gains or capital gains that will accrue moving forward? And what about real estate or Limited Partnerships that hold real estate or real property funds? A bit of a head scratcher.
The accounting sounds like a nightmare too. Taxpayers will have to pay for additional infrastructure at CRA including auditors, training, new departments and dealing with mistakes and delays. And of course, accounting costs for business owners will climb, yet the plan is to have business owners invest back into their businesses to create job growth.
We still haven’t heard about the tax treatment on income splitting, perhaps the most contentious of all tax change proposals.
The good news is that the Liberals have left family trusts and numbered companies alone. While there’s an opportunity for a tax grab there too, both Mr. Morneau and Mr. Trudeau have significant wealth tied up in these shelters so we should probably leave those items alone.
Till next week.
Daniel Popescu CFP, CIM, FMA, FCSI
President & CEO
MNP Tower, 3100-1021 West Hastings St.
Vancouver, BC V6E 0C3
T: 604-558-6830/1(877) 588-6822
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