Finance ministers to press Morneau about opting out of controversial tax change

OTTAWA — Finance ministers from at least two provinces are planning to question their federal counterpart Bill Morneau about whether they can opt out of Ottawa’s plan to implement a controversial tax change.

The country’s finance ministers will discuss a range of issues – from the state of the economy, to federal equalization payments, to the escalating threats of US protectionism.

Manitoba’s Cameron Friesen and Saskatchewan’s Donna Harpauer say they will also press Morneau about a tax change he first announced last year that’s related to passive investment income held by incorporated individuals.

Both Friesen and Harpauer say Morneau has told them each province must choose whether to implement his tax change – and they want to know how complicated it would be if they ultimately decide not to follow Ottawa’s lead.

The government has argued the tax change on passive investment income will only affect the top 3% of the wealthiest incorporated individuals – but critics have warned it will unfairly pile on significant costs for small business owners.

Canadian Federation of Independent Business president and CEO Dan Kelly says he’s been lobbying provinces not to follow Ottawa’s lead on the passive-income change because he argues it will hurt small businesses and damage economic growth.

Friesen said in an interview that the Manitoba government was a “powerful critic” of the first version of Morneau’s tax reform plan, which Ottawa later watered down following a backlash that included small business owners and incorporated professionals, such as doctors and lawyers.

He said Morneau has been clear that the provinces can choose whether they want to be integrated with Ottawa on the tax change.

But the issue and how to go about opting out is very complex, he added.

“We are trying to understand more what it is the federal government is permitting here,” he said.

“And we’re trying to understand, also, the timeline that will be necessary to undertake, to understand, what are our options.”

Kelly said the passive-income tax change will require the provinces to make legislative changes of their own in order for them to follow suit with Ottawa.

The change, which will take effect in 2019, is projected to add $2.3 billion to government coffers over five years, but Ottawa has insisted the effort was not about generating more revenue.

Morneau’s office has maintained it was about ensuring wealthy individuals do not have an incentive to incorporate, just so they can get a better tax rate than people in the middle class.