'It's garbage': Outrage over proposed tax changes overblown, economist says

An economist whose research formed the basis for the Liberal government's proposed tax changes for small businesses says claims that they would hit middle-income Canadians the hardest are "ridiculous," saying the numbers don't add up.

Michael Wolfson, a professor at the University of Ottawa, says his research, based on tax returns from Statistics Canada, found that the most frequent users of tax loopholes for private corporations were disproportionately high-income salary earners of over $150,000.

Wolfson made the comments as Liberal Saint John-Rothesay MP Wayne Long broke ranks with his party and spoke against the proposed changes.

The changes could eliminate a number of avenues that incorporated small businesses use to hold on to their income.

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They include getting rid of income sprinkling, which lets incorporated small businesses transfer income to family members who may not technically work for them, and curbing the use of private corporations to make passive investments in stocks and real estate.

Saint John MP concerned 

Long, who was an entrepreneur before being elected in 2015, says he believes small business owners should be able to use these tools, given they are responsible for creating their own pension funds and covering their medical costs.

"I believe that small business owners have that right because of the risks they're taking, for the people they're employing," Long told Information Morning Saint John.

"When small business owners in this riding are basically, for lack of a better term, irate, and concerned, I'm concerned."

He said small business owners should also be able to create a cushion in case something happens to their business.

"You can split hairs and say, well they can invest in an RRSP and they can still have money over in their passive account, but my philosophy is they deserve to have that money there," he said.

"It helps our economy, it helps them grow."

Prof blames poor communication

But Wolfson called arguments that self-employed people need these loopholes because don't have the same rights and privileges as other people "garbage," because they have other ways of accessing those benefits.

"If they wanted to use RRSPs, for example, they could pay themselves a salary out of their corporation," he said. "The fact that they don't pay a salary means that they're using the advice that it's more beneficial, i.e., they can lower their tax rates more, if they leave the money inside the corporation.

"If they want to set up a pension, they can set it up inside the corporation."

Wolfson said he thinks the proposed changes have become a lightning rod for controversy because of the rhetoric of those who opposed it, and because Finance Minister Bill Morneau "hasn't done a stellar job of communicating what the impacts would be."

Long stressed that the Liberals are still in the midst of a consultation process. He said he plans to advocate changes to the proposed new rules.

"We need to slow this process down and make sure we do this right," he said.