We would be happy to answer questions on any of the recommendations that are in our submission. However, in the brief time that we have today, we want to focus on an issue that wasn't covered in our brief, one that was just beginning to appear on our radar screen when we submitted our brief in early August. It is one that we are hearing about from our members on a daily basis. That, of course, is the proposed business tax rule changes.
The consultation began during the height of the busy summer season for restaurants, and it wasn't until later in the summer that they began to check in with their accountants and tax advisers, to find out what it was really going to mean to their businesses and to their families. That's when we really started getting the calls. The proposals are hugely complex. They would fundamentally change the tax system and are clearly a game-changer for some small businesses in our sector.
Restaurant businesses share many of the characteristics of farm businesses. They operate seven days a week for between 16 and 24 hours a day, and the whole family is usually involved in the business from an early age. As a result, the rules that restrict the sharing of the profits of the business with family members through dividends and trusts, including lifetime capital gains exemptions, are concerning.
We are worried about the confusion and challenges that would result from the interpretation of reasonableness in terms of proving contribution to the business. We particularly object to the more restrictive rules for family members between the ages of 18 and 24 and those 25 and over. Restaurant family members typically continue to work weekends, evenings, and holidays while they are attending school, often taking courses to assist them in furthering the business when they graduate, so we don't think age should be a determinant of a family member's involvement or commitment to a business.
Restaurateurs and farmers also experience similar fluctuations in business because of seasonal ebbs and flows in business cycles. The proposed rules on passive income suggest that opportunities to invest in the growth of the business coincide when extra after-tax dollars are earned. This is typically not the case. Businesses must be able to invest their profits for that inevitable rainy day and for business expansion at the appropriate time.
Something else that differentiates entrepreneurs who operate restaurants from other professionals is that they directly employ a lot of people. You would be hard pressed to find a one person restaurant business that incorporates. Responsibility for payroll contributes significantly to the risks that a small business must take on, a risk that entails mortgaging their family home and assets without a safety net or pension plan to fall back on.
The majority of restaurants operating as corporations have been doing so for their entire business lives, and have arranged their retirement and estate planning around existing rules. It would be unfair to pull the rug out from under them at this point in their lives. At a minimum, the rules must be applied on a go-forward basis with currently owned corporations grandfathered, but that won't address concerns about the willingness of businesses to invest in the future.
As a result, we recommend that the government withdraw its current proposals and engage in a more in-depth examination of the taxation system.