Original author: Gillian Livingston
Published: March 24, 2021
Source: theglobeandmail.com
CALU President and CEO Guy Legault is among the Canadian business and investment industry association executives interviewed about their pre-budget recommendations to the federal government in this recent article in The Globe and Mail.
Helping small businesses recover from the devastating effects of the COVID-19 pandemic and giving Canadians more ways to save for their retirement and long-term care needs are the key themes in Canadian business and investment industry associations’ pre-budget submissions to the federal government.
Canadians will hear Ottawa’s financial plans for the next fiscal year on April 19, when federal Finance Minister Chrystia Freeland delivers the budget in the House of Commons. It’ll be the first time since March 19, 2019, that the feds have tabled a budget.
The most important issue for small businesses is that the government relief programs need to expand, improve and continue as the economy starts to recover, says Corinne Pohlmann, senior vice-president of national affairs and partnerships at the Canadian Federation of Independent Business (CFIB) in Ottawa. For example, new businesses need to be able to access these programs.
“It’s important that those emergency relief measures are in place as long as there are restrictions on businesses to be able to fully open,” she says, acknowledging that these programs are expensive and will end at some point.
“There are so many businesses on the precipice right now,” Ms. Pohlmann says, and removing supports too quickly could sink businesses hit hardest by the pandemic closures. Already, many companies have gone bankrupt, retired, or quietly shut their doors for good.
“These programs are the reason they’re still able to get through this and they could be very viable and vibrant businesses once they get customers back in the door,” she adds.
Many businesses have taken on a heavy debt load during the pandemic and need to repay those government loans, she says, and Ottawa could make a portion of those loans forgivable. The government must also help support businesses as they start to hire back their workers, she adds.
The CFIB says that one in six small businesses is at risk of closing before the end of the pandemic, which would put 2.4 million jobs at risk. About 70 per cent of small businesses report that they’ve taken on new debt during the pandemic, with the average amount totalling $170,000.
“That’s a lot of money for a small business to figure out how they’re going to pay back,” Ms. Pohlmann says.
As such, the CFIB also wants the government to delay any new taxes or costs to small businesses, she adds.
Earlier this year, Canada Pension Plan (CPP) costs rose for employers, and next on the horizon is the April 1 carbon tax increase to $30 a tonne from $20 a tonne. The CFIB also wants Ottawa not to increase Employment Insurance premiums to pay for the relief programs.
Small businesses are vital to Canada’s economic recovery, Ms. Pholmann says, as they account for almost 50 per cent of the country’s gross domestic product and employ almost 90 per cent of workers in the private sector.
Estimates on the worst end indicate that up to 20 per cent of small businesses may close because of the pandemic, and Ms. Pholmann says “that would be a real blow to the Canada’s economy.”
The Investment Industry Association of Canada (IIAC) is calling on Ottawa to introduce a tax incentive, such as a personal tax credit, to encourage Canadians to invest in the shares of small and mid-sized companies, says Ian Russell, the association’s president and chief executive officer in Toronto.
The IIAC has proposed this measure for five consecutive years. He says it would help “the marketplace to make the decision to invest and support the growth of small business.”
Britain has a program called the U.K. Enterprise Investment Scheme, initially launched in 1994, that had invested almost $35-billion in about 30,000 companies as of 2019 to help them grow. Canada can create a similar program here, Mr. Russell says.
It’s hard to get equity into small businesses, he says, and “that’s the foundation to grow, not debt.”
The program in Britain “provides a personal tax credit to an individual to buy stocks in a small enterprise,” Mr. Russell says. “[This program] would create a lot of interest and it would stimulate a lot of local capital into the startups and into the growing smaller businesses,” as Canadians would be able to invest their money in local small businesses they know.
“Never do we need that more than now, coming out of this COVID-19 pandemic,” he says.
Meanwhile, the Conference for Advanced Life Underwriting (CALU) is again putting forward its proposal for the government to remove “unfair penalties and barriers that impede succession of small businesses to the next generation of family members.”
Guy Legault, CALU’s president and CEO in Ottawa, says that “this is one [change] that is long overdue.” Currently, there’s a private member’s bill working its way through the system that has strong support.
“This is so important, especially with the pandemic, because so many small businesses have been affected and some owners may consider retirement,” he says, and the way the rules are right now, the taxes are higher if they sell to a family member versus an outside third party. “We think this is really unfair, not equitable, and should be fixed.”
CALU also wants Ottawa to revamp policies to give Canadians more access to investment and retirement products that help fund longer retirements and modify tax rules to support products that help people fund the growing costs of long-term care.
“If COVID-19 has done anything, it’s shown us how much of a crisis there is [in long-term care] and how much people want to stay at home and get support,” Mr. Legault says.
Meanwhile, Stephen Frank, president and CEO of the Canadian Life Health Insurance Association Inc. (CLHIA) in Toronto, says the rules need to change to allow Canadians to hold annuity products in their tax-free savings accounts (TFSAs), registered retirement savings plans (RRSPs), and other registered plans.
Permissible investments in TFSAs include cash, mutual funds, securities listed on an exchange, guaranteed investment certificates, bonds and certain shares of small business corporations, but not annuities.
“People are worried about longevity and outliving their money,” especially as few Canadians now have defined-benefit pension plans, he says. The TFSA rules “are something that should be reconsidered.”
Funds from RRSPs are taxed when withdrawn, and that can trigger CPP and Old-Age Security clawbacks, he says, while funds from a TFSA aren’t.
Mr. Russell of the IIAC says all the rules around registered savings plans need to be re-examined.
“They’ve been neglected,” he says, as there has been no expansion of the contribution amounts even as companies reduced pension plans and people are working and living longer. “There’s a lot of potential for policy change to improve those programs so Canadians can use them more.”
He says TFSA contribution amounts should be doubled, minimum registered retirement income fund withdrawals should be eliminated, and Canadians should be able to contribute to an RRSP beyond the age of 71.