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Federal Budget 2017: Not Good News for Dentists

By March 22, 2017June 27th, 2023Michael's Operatory

Times were good. You know – when government was smaller and left small businesses alone to start, build themselves up, save taxes, reinvest and expand. To create jobs. To run marketing campaigns. To renovate. To spend on innovation. To buy new equipment. To save/defer taxes. To increase the GDP. And now the current government is making it harder by shifting focus. The current government wants to be bigger. Wants to run new and costly programs. Is it just me or does the government not have a clear plan on what they want Canada to be and by when. Their spending is out of control.   And who is fronting the bill for all of that? Taxpayers.

And now all small businesses seem to be targeted.

Take for example the following (which came out of the 2017 budget today). The government all of a sudden isn’t happy that businesses structured as corporations can income split among family members to save taxes on the whole. You know: a dentistry professional corporation that has a dentist and their spouse receiving $50k in dividends each instead of the dentist taking $100k personally, which results in significant tax savings. Like I said, the government all of a sudden isn’t happy they can do this. But guess what? That’s the nature of a corporation. That’s how dividends work. They’re not guaranteed forms of payment (like loan repayments are). It’s money generated from a business, for which taxes are paid, and then which can be distributed to shareholders (or not). That’s part of the benefit of having hard-working Canadians TAKE THE RISK of starting/maintaining their own business. Maybe that’s their retirement plan – you know: to keep the money in their corporation instead of in an RRSP and to take it out when they need it (when they do retire)?

So why is the government contemplating taking that away? It seems like they don’t like small Canadian-controlled private corporations with only a few employees being used to horde cash, investments, property, etc. and avoid paying taxes. I’m sure they would prefer to FORCE everyone to buy RRSPs and pay for their own retirement (because they don’t trust that Canadians are smart enough to plan ahead and take care of themselves when it’s time to stop working). But small business owners are risk takers and entrepreneurs. They don’t think about retirement. They love what they do everyday and don’t want to be forced to stop. They don’t want to tie their cash up in an RRSP when they need it to expand their business. They could earn much more by reinvesting in themselves THAN BY getting a GIC from the bank or putting it in the volatile stock market.

FYI, the Government also already punishes (with very high tax rates) income earned by a corporation on a passive investment portfolio. But now, per the federal budget, they want to go after that too!

Private corporations exist to help mitigate risks of adventurous Canadians wanting to start their own business WHILE AT THE SAME TIME allowing private individuals to raise money to expand their business (by introducing ownership levels and maybe even allowing the company to raise public funds one day). What does the government not understand about this? Why interfere with that? I thought we were in a laissez-faire socio-economic society! Is the current government trying to drain Canada of all risk-taking, smart business owners? Who then is supposed to employ the vast majority of Canadians? The public sector?

From what I’ve read, here’s the worst part of the federal budget – namely, that the government wants to look at measures (old and new) in order to increasingly tax small business owners:

“The Government is therefore further reviewing the use of tax planning strategies involving private corporations that inappropriately reduce personal taxes of high-income earners. In doing so, the Government will also consider whether there are features of the current income tax system that have an inappropriate, adverse impact on genuine business transactions involving family members. The Government intends to release a paper in the coming months setting out the nature of these issues in more detail as well as proposed policy responses. In addressing these issues, the Government will ensure that corporations that contribute to job creation and economic growth by actively investing in their business continue to benefit from a highly competitive tax regime.”

I don’t agree with the notion that ONLY job creation will save a private corporation from paying more taxes. What if that private corporation invested, as per my opening statements, in running a marketing campaign? In buying new equipment? In leasing new space? There are OTHER things to invest in than just hiring more people. And actually, by taxing corporations more, there will be LESS money to hire people. Small businesses will have to scale back their expansion plans.

The only good news from the federal budget it that capital gains were left alone (maybe just for now).

If the government continues this path, Canada will NOT be competitive in attracting businesses, capital, and smart/risk-taking individuals.

The Content of this post is provided for informational purposes only. It is not intended to be legal, financial, tax, or other professional advice of any kind. You are advised to contact DMC (or other counsel) to seek specific legal advice concerning your individual situation.