Thanks very much. John and I will share the presentation.
I did wear a different suit this week, Chair, just to try to throw you off, but it didn't work.
I am here today not in my capacity as head of the Canadian Federation of Independent Business, but as a member of the Coalition for Small Business Tax Fairness. This coalition started less than a month ago with 35 business associations coming together to raise their concerns over these issues and now has grown to over 70 business associations across the country, representing hundreds of thousands of Canadian employers and millions of Canadian employees.
The coalition members are listed in the deck that I presented to you and include members from construction, agriculture, professional services, retail, and restaurants. All of those groups came together to try to express concerns to government about these proposed changes.
By way of background, I'm very pleased to hear that those who are in favour of this legislation—government—and those who are opposed have agreed that the vast majority of small firms have fairly modest levels of income. Two-thirds have under $73,000 in income. I'm very pleased that we're not getting into a debate over that.
Our point has been that business owners at all levels of income potentially will be affected by at least one of the three measures in this package, including those who are earning well below $150,000 per year, a number that was put out by the minister.
Many of these businesses, if not most, will also find that their tax burden will increase. That's something that I think we need to make sure government knows. For for the majority of business owners, their overall aggregate level of taxation that they will pay as a result of these changes will be higher in the future, obviously meaning less money for the other things that we may view as important.
Also, through these changes, there many examples, which the coalition is illustrating, of where Canadian business owners will pay higher rates of taxation than other taxpayers at similar levels of income. This isn't just about making small business owners pay the same. In many cases, we find that business owners will pay more. Of that, there seems to be no question. All of the reviews by tax professionals have suggested that there are many examples where business owners will pay more than other taxpayers at similar levels of income.
On income sprinkling, this has the potential of affecting all taxpayers at almost all levels of income. Really, at the income level of about $50,000, business owners will start to be affected by these changes.
We are also deeply concerned about the lack of clarity of the enhanced reasonableness test that will be used by the Canada Revenue Agency.
With respect to passive income rules, many businesses do have requirements to retain earnings in the corporation or policies that limit the amount that can be distributed to their shareholders. Many businesses incur losses in their start-up years that the shareholders just can't use to offset against personal income. We also want to note that successful businesses, particularly in the high-tech sector, use these retained profits in the corporations to invest in other start-up businesses, so that source of financing for other businesses, we worry, will start to dry up.
While some have suggested that an enhanced use of RRSPs or TFSAs may be a solution for business owners, there are the practical limitations of this. Your policies will encourage business owners to take more money out of their businesses, leaving less money in their businesses to protect them against economic downturns or problems in the business, or to invest in future business opportunities.
I'm going to turn things over to John to take it from here.