Why Feminists Need to Care About Tax Changes

Dear Friends,

Buckle up. This is going to be a long one. Honestly, its going to start off dull but you’re going to want to stick with it to find out why I think our great feminist Prime Minister is pushing through sexist and discriminatory legislation. I’m going to tell you why feminists need to care about tax legislation changes.

Ready?

I’m writing today with sincere concerns about the proposed tax changes our Canadian Liberal government is trying to push through a consultation process (in name only) in a mere 75 days.

All over social media, lots of small business owners have raised their concerns about the potential impacts of these changes.

For instance, they’ve expressed concerns that impacts of the proposed changes will include:

- increased costs for small business owners,

- slower economic and employment growth,

- possible flight of talent and capital to other markets,

- less incentive to take risks starting a business,

- harder to sell a business for retiring baby boomers and or/lower prices on the sale of businesses, and,

- most recently, a greatly reduced incentive for successful entrepreneurs to invest excess funds in new start-ups.

Tax law was not my favorite subject in law school. I’m no expert. I certainly didn’t understand most of what I was reading online and most people weren’t telling me why they were so upset. So I asked experts. I listened to experts and asked questions and after presentations from accountants, briefing notes from tax specialists, and meeting with our advisers; I do believe a lot of the above have the potential to be serious outcomes of the tax changes. BUT, they’re not want I want to talk about here OR in the comments (here’s looking at you trolls, take your irrelevance elsewhere). There are plenty of think pieces on these issues. Search them out. Even more critically, book an appointment with an accountant or tax specialist. Seriously. This is complex stuff. Don’t presume because you read a couple Financial Post articles that you know what you’re talking about. Knowledge is power. Let’s move on.

What’ I’d like to raise is another impact that no one seems to be talking about.

These changes hurt women.

These proposed changes discriminate on the basis of marital status, and, because fewer women hold CEO positions in small and medium size companies in Canada and because more women play a “support” role in family corporations, these changes will disproportionally hurt more women than men. There is an unbalanced gender impact of these proposed changes.

The Liberal government has touted itself as the most feminist, the most gender inclusive, and the biggest proponents of equality, but have they looked at these proposed changes through the gender lens? I argue they have not.

I own 49% of a small business in New Brunswick, Canada. My husband owns 50% of the corporation and is the CEO. It’s an independent pharmacy. He’s a pharmacist, so he’s there everyday on site. I still work full time at another job (a not for profit organization) so that we have an income to pay our mortgage, our bills, our groceries, and to make occasion cash infusions into the business.

I also work about 20–25 hours a week for our company. I’m a lawyer, so it makes sense that I would review and negotiate all the contacts and attend all the meetings with accountants, lawyers and book keepers. We learned that women make 70–80% of all household buying decisions, so I took on the role of researching and procuring our product offerings because chances are I knew more about what women would buy than my husband would. I do all the marketing and public relations. I occasionally do prescription deliveries on my lunch hour. I am a cashier on Saturdays. If I’m not working at my day job, I’m working at or for the pharmacy. I also invested money from my own salary and savings into our company.

There are really only two things my husband and I talk about right now. (We opened the business 9 months ago). The first is the logistics of running the house (who’s going to walk the dogs, who’s turn it is to take the garbage out and what (he) wants for supper). The second is our business. Every night we talk about how to grow our business, evaluate what’s going well, what’s not going well. We make to-do lists for each of us for the next day. We debate buying decisions and prices. We share sleepless nights when sales don’t happen and script counts don’t grow.

During all the hubbub of this rushed consultation period on these proposed tax changes, there’s been lots of rhetoric and a lot of the examples given in the media and at workshops to explain the implications of these tax changes. Many of these examples show the woman as the business owner. I appreciate those. Very progressive of the presenters. But that’s not reality.

The truth is women are vastly underrepresented in the business community. We don’t get named CEO very often. Our roles in family businesses are typically treated as silent. Never mind that our family homes which by law (in Canada) we own 50% of are typically used as collateral to get the bank loans businesses need to start and survive. Never mind that we often pay the bills while the husbands start the company and make no income. Never mind that we personally guarantee loans and contracts. Never mind that we sacrifice our career mobility because in many cases we can’t move the family business. At the end of the day, in most cases, women are the “support” or the” silent” partner. Women will be adversely impacted by these changes at far greater rates than men.

There’s also an ugly truth out there that far too many women know. If you and your husband own a company together, the presumption by most people will be that it’s your husband’s business. And don’t even get me started on the uglier presumption that women business owners are typically backed by wealthy husbands or fathers. The independent small business world is rough on women. Don’t kid yourself folks. And those ugly presumptions and stereotypes are at play in this legislation.

Let’s start with the offensively titled “Income Sprinkling”.

(Why is that title offensive to me? Sprinkles are treats. To say you’re “sprinkling” income makes me think you’re implying that the business owner is “treating” their spouse to a little something. It’s gross.)

Under the Liberal government’s proposed tax changes, the numerous contributions that I make to our company are going to have to be extensively documented for me to get any financial benefit. I understand documentation. Some of that will be easy. We’ll stop texting each other, we’ll stop facebook messaging and we’ll make sure that every single communication is saved in email. I don’t know how I’ll prove that I worked as a cashier or that I did deliveries, but we’ll figure that out. The harder part will be tracking the time we spend talking about our business at home. How will we record that? How will we track which decision I made and which my husband made? How will we prove that? Will I need to get written confirmation from my husband that I did something? Are we comfortable with that Canada?

Under the Liberal Government’s proposed tax changes, the presumption is that any family member (such as a wife) who receives income or compensation (a dividend for example) from a family business is a tax cheat. To “remedy” that, the Liberal Government has decided that family members that cannot prove their “activeness” in the company will have the compensation they get from the family business taxed at 43.6%. (Note — that 46.3% will be on top of the 14%-29% corporate income tax that our company will pay before that dividend is issued.) That 25% left over is going to be eaten up pretty quickly by the tax lawyers and tax specialists that I’ll have to hire to prove that I was an active contributor to our company in order to pass the CRA’s “reasonableness” test.

As a lawyer, I’m familiar with plenty of “reasonableness” tests. A “reasonableness” test will not be defined without years of common law. That means court cases. Some estimate likely 10 years of court challenges to get proper parameters around this reasonableness test. It will be years before its clear whether my position in the company is legitimate in the eyes of CRA. They don’t know yet what I’d have to provide in order to prove I’m a legitimate active member of our company. They won’t provide any advice on how to document that. It’s not going to be clear for many years. During that time, I’ll either go uncompensated, or I’ll pay penalties if CRA rules that my contribution was not sufficient to pass the “reasonableness test”. If I was an at arms length business partner or a friend, this would not be the case. I’m being unfairly targeted because I’m a wife. Sure, the same will apply to husbands of women business owners, but let’s get real, female CEOs of incorporated companies are a minority in Canada.

Now let’s talk now about the capital gains exemption.

If I invested $25 000 in a friend’s company, and did absolutely nothing else for the company, simply gave my money, took my shares and walked away; when the company was sold I could use the tax legislation called the “life time capital gains exemption”. That legislation says that when the company sells, I wouldn’t have to pay tax on the first $834 000. To be clear, if that bothers you, it doesn’t matter. That won’t change under the Liberal Government’s proposed changes.

What will change is that because I’m the wife of the CEO of our company, under the Liberal government’s proposed tax changes, I can’t use that same legislation upon the sale of our company unless I can prove my contribution to our company was useful. We’ve already discussed that and determined that’s going to be an uphill battle. My husband will be able to use this legislation and I will not. When we sell our company in 40 years, my husband will automatically be exempted from capital gains tax and I won’t be. That’ll impact my retirement. It means I’ll have to save more and work longer than my husband will. We both worked for our company. We both contributed to its growth. We both used our own savings to invest. How is that fair?

In the eyes of the Liberal government and CRA, I’ll be a guilty sneaky tax cheat if I use legislation like capital gains exemptions because I’m a wife. This will hurt FAR more women than men in Canada and that makes this feminist pretty angry.

Feminists need to care about this issue. We need to challenge the government and advocate that either these changes be abandoned (like other Liberal promises such as electoral reform and the tax on stock options) or at minimum narrowed to not unfairly disadvantage small business owners. We’re not simply spouses of business owners. We’re shareholders of corporations. We assume extensive risks. We make substantial financial investments. We work for those businesses everyday but our marital status is going to affect our ability to financially benefit from that work. That is entirely unacceptable.

This is just another example of the work of women being ignored and undervalued in our country.

Enough.