Good morning. My name is Jerry Dias. I am the national president of Unifor, Canada's largest union in the private sector.
We represent over 315,000 working people from coast to coast to coast. Our members work in every sector of the economy and are represented at every income level. Our members pay their taxes and contribute in multiple ways to building a society that we want to live in every single day.
On behalf of our members, their families, and their communities, I am pleased to provide our views on the fair taxation of income of CCPC owners in Canada.
Unifor advocates for and supports a progressive tax structure that ensures our governments at all levels have the revenue necessary to provide high-quality, efficient, and effective public services. That tax structure also needs to acknowledge the income and wealth inequality present in our society today and ask those who earn more to pay more.
Taxes pay for the basic services that we rely on every day, from health care to infrastructure and to addressing some of the most pressing needs of today, including poverty elimination, reconciliation, and leadership on the environment. The issue we're discussing today is an inequity in our tax system that allows some people to opt out of paying their fair share of the revenue governments need to pay for those services.
The Government of Canada is proposing to close some tax loopholes that allow incorporated small business owners to avoid paying the same amount of tax on their income as an earner who works for employment income and makes the same amount of money. Sixty per cent of the top 0.1% of income earners in Canada own shares in a CCPC. Only 5% of middle-income families do the same. That means that 60% of those who earn the highest incomes in Canada have the ability to opt out of our progressive tax system through these loopholes, while the rest of us have been paying our fair share all along.
Most small business owners do not benefit from these loopholes either. A business owner has to have a very high income and a particular family structure in order to accrue significant benefits from the loopholes that are being discussed, but two-thirds of small business owners make less than $73,000 a year. Most small business owners do not earn enough money to exploit the loopholes.
Unifor supports the government's initiative to increase fairness in the income tax system by closing unfair tax loopholes: loopholes that are currently available to high-income earners who have incorporated a small business, but not available to people who work for a salary or wages, both high- and low-earning. The result of exploiting these loopholes means that some earners have higher disposable income or a larger investment portfolio than others simply because of the structure of their business.
The loopholes under scrutiny today have meant that two earners with similar incomes, and in a similar family structure, one with a CCPC and one without, will pay two very different effective tax rates. Those differing effective tax rates result in two very different levels of disposable income today, and two very different levels of savings in the future.
We know that the tax benefits of these loopholes accrue to the highest-earning CCPC owners. Furthermore, the research from virtually every economist and policy expert who has weighed in on this subject has found that the benefits of the tax loopholes only accrue once a CCPC owner's income has surpassed a certain level. Income splitting, for example, does not provide a significant benefit to anyone making less than $90,000.
Business associations and other advocacy groups have tried to paint the proposed changes as a tax grab on the middle class. This is not the case. The tax changes will lead to more high-income earners paying the same tax rate as their salaried and wage-earning peers. Where this issue does affect the middle class is in ensuring that income earners in the same income decile before tax are in the same income bracket after tax.
Business associations and other advocacy groups have tried to paint the proposed changes as a drag on investment, innovation, and entrepreneurship. The reality is that these tax loopholes have very little to do with innovation or business investment. Governments can and should develop systems that support innovation and business investment, but the current system is one that incentivizes neither.
This proposal is about protecting the integrity of Canada's progressive tax system. Canadians believe in paying their fair share of taxes. While there is more to be done, this is certainly a step in the right direction.
Thank you.