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Pollster predicts Liberal tax reforms will hurt them politically

By Abbas Rana      

Greg Lyle says the Liberals stand to lose the support of ‘potential donors’ and ‘leaders’ with its tax crackdown on self-employed professionals.

Finance Minister Bill Morneau and his government might lose the support of some powerful 'leaders' and 'potential donors' with his proposed tax reforms, says pollster Greg Lyle.
The Hill Times photograph by Jake Wright

A prominent pollster says he’s “surprised” at the Liberal government’s recently proposed tax reforms, as they have the potential to alienate many of the influential people whose support they’re counting on for the next election campaign.

Greg Lyle of Innovative Research said he was surprised when he heard about the government’s proposed changes that crack down on self-employed professionals’ use of incorporating themselves to avoid higher taxes because Liberals will make “some real enemies.” He added that this is a gift for the Conservatives. Mr. Lyle said if the Liberals went ahead with these tax reforms, it would hurt them more than help politically. But, he said, it’s hard to say at this time how much will it hurt.

“These people are all potential donors,” Mr. Lyle said. “From the Tory perspective, this is manna for the Tories. They’re going to be very motivated. I’m really surprised [the Liberals are] going down that road.”

He predicted that opponents of these tax measures will not only donate money to the Conservatives, but will also actively campaign against the Liberals in 2019.

“You are talking about a network of leaders,” said Mr. Lyle. “All these people run businesses, they’ve got skills. They know how to sell, they know how to organize because they do it for living. If you anger those people, and they say, ‘I want to get even, I want to get back the way it was before, and they decide to do something about it,’ that means thousands of new volunteers, organizers, and fundraisers for the Tories.”

In mid-July, Finance Minister Bill Morneau (Toronto Centre, Ont.) announced a proposed tax-reform package to restrict the use of private corporations as a way for individuals to pay less taxes and deprive the government of billions of dollars. The minister said that the government would consult Canadians for 75 days on the proposals outlined in a 63-page paper.

If adopted, this would affect many self-employed professionals, such as physicians, lawyers, dentists, accountants, veterinarians, dentists, plumbers, farmers, and landscapers.

The changes affect three ways high-income earning Canadians use private corporations to pay lower taxes, including “income sprinkling” among family members, investing through corporations, and converting regular income into capital gains. The proposal paper pointed out that in recent years there has been a significant increase in the use of private corporations for tax purposes.

“The number of Canadian-controlled private corporations (CCPCs) has increased substantially, from 1.2 million in 2001 to 1.8 million in 2014. Growth has been particularly strong in some sectors; for instance, the number of corporations in professional services has tripled over the last 15 years,” said the paper entitled Tax Planning Using Private Corporations.

“An increasing proportion of self-employed individuals—many of whom traditionally have been unincorporated—are choosing to incorporate. In some industries, the proportion of incorporated self-employed individuals almost doubled between 2000 and 2016.”

Since the unveiling of the proposed measures, a number of organizations representing professionals, such as the Canadian Medical Association that represented physicians, have blasted the government for considering the changes. These organizations are encouraging members to contact their respective MPs.

“MPs are home for summer. Call or meet yours to say you oppose the unfair tax attack on Canada’s farmers and family businesses!” Perrin Beatty, CEO of the Canadian Chamber of Commerce, said in a tweet last week.

Liberal MP Kyle Peterson, left, pictured with Liberal MP Paul Lefebvre. Mr. Peterson said he has heard from dozens of his constituents on the government’s proposed tax changes. The Hill Times photograph by Cynthia Munster

Rookie Liberal MP Kyle Peterson (Newmarket-Aurora, Ont.) said in an interview that, since mid-July, he has received feedback from dozens of his constituents. He said people are divided about 50-50 for and against the reforms. Mr. Peterson also said that a number of his constituents have also sent proposals of their own on how to address the issue of tax avoidance, which he would forward to Mr. Morneau.

“I’m getting reaction on both sides,” said Mr. Peterson who won his riding by a margin of 2.6 per cent of the votes in the 2015 election.

He challenged the notion that if Liberals adopted the proposed changes, it could hurt them in terms fo fundraising and votes in the next election.

“I don’t agree with that necessarily,” said Mr. Peterson. “I think there’s a lot of misinformation out there. We’ll wait and see what the actual proposals are, what the changes to the legislation are before we see what the measures are, and see what impact they have on Canadians.”

Liberal MP Dan Ruimy (Pitt Meadows-Maple Ridge, B.C.) said he has recently started the consultation process on this issue and is providing information to his constituents. He said he would hold roundtable meetings on this topic in the coming weeks.

“We’re just starting to reach out and asking people what are their thoughts,” said Mr. Ruimy who won his riding by 2.5 per cent of the votes.

Conservative Sen. David Tkachuk says he is against Morneau’s tax proposals. The HIll Times photograph by Jake Wright

The Senate Banking, Trade and Commerce Committee is considering hearings in the fall on the proposed tax reforms, said Saskatchewan Conservative Sen. David Tkachuk, chairman of the committee. He told The Hill Times that Alberta Ind. Sen. Douglas Black has requested the committee conduct hearings and study the reform package. He said Sen. Black’s request has been forwarded to all 14-members of the committee, and once the Senate returns for the fall sitting, the committee will make a decision. The committee consists of six Conservatives, six Independents, and two Liberal Senators.

If the committee agrees to study the reforms, such a decision would still need to be approved by the full Senate. But, Sen. Tkachuk said if a committee chooses to undertake a study, it’s rare that the Senate would overrule.

“Sen. Black has laid his proposal in front of us, he sent a letter to the clerk and myself, and it’s going to be distributed to all the Senators,” said Sen. Tkachuk in an interview with The Hill Times. “In the fall, we’ll get together and there’ll be other items on the table that other Senators may want to discuss for a study. My view is that we probably will [hold hearings], but it’s hard to say.”

Sen. Tkachuk said if the committee decided to hold these hearings, it would invite Mr. Morneau to hear his reasons for the reforms. After the hearings, the committee will put out a report with recommendations, but it would be up to the Trudeau government to incorporate the report in the next federal budget or not.

Sen. Tkachuk said he is against Mr. Morneau’s proposal and a number of people in his region have provided him negative feedback.

“There’s nobody saying, ‘Boy, is this ever a good idea,’ ” said Sen. Tkachuk.

Professionals’ use of corporate structures “isn’t a way to avoid taxes,” the Senator said, but “a way to do business.”

Sen. Black was not available for an interview by deadline last week, but in a press release he said the Banking Committee should undertake a detailed study of the proposed tax changes. Considering the complexity of the subject, he also requested Mr. Morneau, in a letter, to extend the consultation period until Nov. 30.

Quebec Liberal Sen. Paul Massicotte said he would need more information to make a decision on whether the committee should start hearings right after Parliament returns or wait until the government tables legislation on these reforms. Right now he’s in favour of holding hearings only after the minister completes his consultation process and tables the legislation, so Senators have concrete information on the changes. But Sen. Massicotte said he’s keeping an open mind and wants to hear the reasons why the study should commence immediately after Parliament returns.

“Should we do it now, should we do it later? I’m more in favour of later, but I’m flexible somewhat,” said Sen. Massicotte.

“I’m not too sure that a study should be done urgently. I would maybe favour waiting for the minister to complete his round of hearings and inquiries. And, may be we should then meet to respond to his proposed legislation.”

Alberta Conservative Sen. Scott Tannas told The Hill Times he would like to commence hearings at the start of the fall session and to hear from the minister. Also, he said he is in favour of the idea of tax fairness, but he wants to be careful about any unintended consequences.

“We should have hearings and really understand the issue and make sure we know what the Finance minister is attempting to get at,” said Sen. Tannas.

“We all need to pay our fair share of taxes. There shouldn’t be an artificial way in which you can avoid paying taxes or defer paying taxes. That being said, there are lots of strong good reasons for people to own companies and that’s why proceeding thoughtfully and carefully is important.”

British Columbia Liberal Sen. Larry Campbell said in an interview he had not yet made up his mind whether the committee should study these reforms or not. He said he would make a decision when the committee meets in the fall and discuss the issue.

arana@hilltimes.com

The Hill Times

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