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Canada's tax rate is 47% higher than the average G-7 rate. - Reader's Digest Poll
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One of the greatest burdens faced by small business owners is the red tape and high cost of Canada's tax system.
Not only are business owners required to carefully track their expenses, collect tax, and remit on time, but they must also pay a number of taxes that are never seen by the consumer. The penalties for not collecting or remitting on time are harsh, and not knowing is never an acceptable excuse.
Meanwhile, when it comes to taxes small business owners are among the hardest hit. According to Catherine Swift, President, Chief Executive Officer and Chairwoman of the Canadian Federation of Independent Business (CFIB), small businesses pay 35-40% more in taxes than their big business counterparts.
"Because of the current tax structure, more labour taxes like CPP and UI fall on the small business owner," Swift said. "It's a measure of the tax system that big businesses can – and do – take advantage of."
"We call them punitive taxes," explains Swift. "Canada pays the highest taxes in the world, and most of them are levied on business owners."
Canadian Chamber of Commerce (CCC), with over 170, 000 members, recently launched a war against taxes. Their "Tax Reduction Strategy" states that the federal government can afford a minimum of $9 billion in tax cuts without affecting programs.
"The impetus for a tax reduction strategy rose from the business community's concern that overburdened taxpayers have experienced a marked deterioration in their disposable incomes and standard of living," said Nancy Hughes Anthony, President and CEO of the CCC.
"Most of our members are part of small or medium-sized businesses," she explained. "They are doing their best to support their families. What they need from government is a fair shake – a chance to improve their standard of living."
With the link between business revenues being tied so closely to personal incomes, the high rate of taxes paid by small businesses is spilling into their personal lives.
"For the small business, personal and business finances are often together in the same pot," said Swift. "This country needs a reduction in personal income taxes as well."
According to a recent Reader's Digest/Gallup Canada Poll, an overall tax reduction would be supported by many Canadians. The survey, which polled Canadian families of 4, found that Canadians underestimated their tax burdens by as much as 25%. What do Canadians believe they should pay in tax? The vast majority of respondants in the recent poll said that all Canadians should be paying 29% in tax.
"Canadians - business owners and family alike - want more money into their pockets as they contribute to the economy," said Swift.
'Employee' Taxes
Not only are high taxes taking money out of the economy, but they are also creating a shift toward contract workers as opposed to full-time hires.
When a business hires an employee, they take on an additional tax burden. Unless the business qualifies for a premium reduction, every dollar of EI the business owner deducts from a paycheck must be matched by another $1.40 from the business' coffers. Every dollar in CPP that is deducted is matched with another dollar.
Filling out forms takes workers away from doing the things needed to generate revenue. The deducted funds must be received by Revenue Canada by the 15th day of the following month, or else the business will face stiff penalties.
The bottom-line is that for many small businesses working to manage the 'paper burden' along with other tasks and their core business, hiring is often not worth the effort.
"With our current system, Paul Martin is giving a message not to hire people," said Swift. "The small business owners are finding other ways to get around this, and it's not healthy for the economy."
EI Surplus Exceeds $20 Billion
Meanwhile, when it comes to the EI tax the government coffers are overflowing. In a report released early this year, the CFIB estimated that by the end of 1998 the federal goverment would have accumulated a $20 billion EI surplus. This money is then being redirected to roll-out programs across the country that may - or may not- have to do with improving unemployment levels in Canada.
It's no wonder that Canadian businesses are fed up, and that a tax backlash is building.
Are changes needed to Canada's tax system? What can be done to transition Canada from an overtaxed nation to a nation that balances social programs with fair taxation? Or is this a non-issue?
We will look at these questions in the second part of this article in an upcoming issue of CanadaOne. In the meantime, we would love to hear your thoughts! Please take a minute to answer a few quick questions below, and be sure to sign-up for What's On, our free newsletter that will keep you informed of new articles as they are published.
