Hootsuite CEO warns of threat to innovation; unions laud closing of tax loopholes

Ryan Holmes says proposed changes to small business taxes could prevent Canada from becoming a hotbed for technology giants.

September 13, 2017   by CP STAFF, PLANT

Finance Minister Bill Morneau has released a three-pronged plan to end several tax provisions used by some small businesses.

TORONTO — Canada’s unions are welcoming the federal government’s plan to close tax loopholes for high-income earners, calling it an important first step toward bringing more fairness to Canada’s tax system.

“Today’s tax rules make it possible for someone earning $300,000 to save more on their taxes than the average Canadian worker makes in a year, and that is fundamentally unfair,” said CLC president Hassan Yussuff.

But the head of one of Canada’s best-known tech darlings says Ottawa’s proposed changes to small business taxes could hamper innovation and prevent Canada from becoming a hotbed for technology giants.

“I’ve been an entrepreneur and a small business owner for a large part of my career, I know that a lot of those businesses operate on the margins,” Ryan Holmes, CEO of social media management platform Hootsuite, said in an interview at the Cascadia Innovation Corridor Conference.


“I would encourage the government to look very closely because … it is causing a lot of concern to business owners,” he said.

Hootsuite, which launched in 2008, now employs close to 1,000 people in Vancouver and several offices abroad, according to its website.

In mid-July, the federal government released a three-pronged plan to end several tax provisions used by some small businesses.

One provision at risk of being eliminated is income sprinkling, a practice that permits business owners to lower their taxes by passing income to family members, even those not active in the business, who are in lower tax brackets.

The government is also proposing limits on the use of private corporations as a way to gain tax advantages when making passive investments, and limiting the conversion of a corporation’s regular income into capital gains that are typically taxed at a lower rate.

Yussuff said this kind of “tax avoidance” is costing the federal government as much as $500 million a year. “Taxes pay for the vital services that we all rely on, from physical security and food safety, to health care and education and disaster relief, and Canadians expect everyone to pay their fair share.”

The criticism from Hootsuite’s CEO and other small business owners is directed at a federal government that has put innovation front and centre. The buzzword received hundreds of mentions in the budget and the Liberals have committed to $950 million to a supercluster program.

Tech firm leaders have been successful in changing the Liberal government’s mind about policy in the past. After discontent from a number of tech firms, Ottawa abandoned a plan to cap how much could be claimed through stock option deductions.

The Finance Department did not immediately respond to a request for comment on concerns around the new proposals.

Prime Minister Justin Trudeau has previously said the government is holding public consultations to hear Canadians’ concerns and ensure there are no unintended consequences. The consultations end Oct. 2.

Yussuff also wants the government to go after the top one per centers and corporations, calling for a more aggressive clamp-down on what he describes as tax havens and “corporate tax dodging.”

His suggestions include cancelling stock option deductions, fully including capital gains in taxable income, and cancelling the flow-through shares deduction; taxing foreign e-commerce companies to level the playing field for Canadian providers; increasing taxes on banks and finance; and introducing wealth taxes and more progressive income tax.

Job losses with minimum wage hike

Meanwhile, a report from Ontario’s Financial Accountability Office (FAO) says more than 50,000 people could lose their jobs if the Ontario government goes ahead with its plan to raise the minimum wage to $15 an hour by 2019.

Groups representing both small and large businesses across Ontario have warned that the minimum wage increase would lead to layoffs.

Karl Baldauf, spokesperson for the Keep Ontario Working Coalition, said that group conducted its own economic analysis of the minimum wage increase which concluded over 185,000 jobs could be impacted by the hike. The FAO report illustrates why the government should proceed with caution, he said.

The report said job losses would be concentrated among teens and young adults, while the number of minimum wage workers in Ontario would increase from just over 500,000 to 1.6 million in 2019.

FAO chief economist David West said the province is entering “uncharted waters” with the increase because no other jurisdiction has gone so far so quickly.

While the move will have a positive impact on the province’s total labour market income – hiking it by 1.3% – it will also result in job losses over a number of years.

“There’s evidence to suggest these job losses could be larger given the magnitude and rapid pace of this increase,” West said.

In July, Premier Kathleen Wynne announced her government would increase the minimum wage to $15 an hour by Jan. 1, 2019. The increase would be phased in gradually and would rise with inflation, as scheduled, from $11.40 currently to $11.60 in October, to $14 an hour on Jan. 1, 2018 and $15 the following year.

Includes files from PLANT; Aleksandra Sagan, Shawn Jeffords of Canadian Press

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