Morneau gets an earful

Photo: The Canadian Press

Finance Minister Bill Morneau

Finance Minister Bill Morneau was inundated with more than 10,000 missives last fall following the release of controversial tax-change proposals that infuriated the small-business community, says an internal federal document.

The memo, obtained by The Canadian Press, says the flood of messages addressed directly to the minister came in addition to more than 21,000 email submissions his department received as part of a related public consultation process.

The Nov. 15 briefing note to the deputy finance minister also said the department had yet to process all the tax-related responses at that time — even though more than a month had passed since the end of the consultation period.

"The tax policy branch has been actively sorting through submissions in order to segregate those containing substantive policy comments for further analysis by those involved in policy development," said the "secret" memo prepared for Paul Rochon and obtained through the Access to Information Act.

"As expected, the consultations mostly attracted submissions from taxpayers that would be affected by the proposed tax changes."

Morneau's tax-reform proposals for private corporations came under fire following their release last summer. A vocal group of opponents spent months criticizing the plan and warned it would hurt the very middle class the Trudeau government has claimed to be trying to help.

Morneau insisted the proposals were designed to stop wealthy owners of private corporations from unfairly taking advantage of the system.

However, the uproar eventually forced him to back away from some elements of his plan after the conclusion of a 75-day consultation period that ended Oct. 2. He insisted some of the changes to the original plan would mean only the top three per cent of the wealthiest owners of private corporations would pay more taxes.

The memo to his deputy minister listed the most common criticisms found in the submissions.

They included complaints the consultation period was too short, that the changes would have retroactive consequences on retirement plans created under the current rules and that farmers were too busy with their harvests to thoroughly examine the proposals.

Other key objections said the proposals would harm small- and medium-sized businesses and unfairly compare the tax burdens of entrepreneurs to those of employees. They note that some employees receive additional non-salary benefits or enjoy greater job security than small business owners.

Another frequent statement in the submissions argued that business owners should be entitled to split income with spouses because they make significant direct and indirect contributions to the operations.

The government, which previously announced it had received 21,000 submissions during the consultation period, took steps to address some concerns by tweaking and removing parts of the plan.

As he faced the backlash, Morneau also followed through on a 2015 campaign pledge to start lowering the small business tax rate.

But critics of the plan, including the president of the Canadian Federation of Independent Business, said Monday that entrepreneurs still have concerns with the government's proposal.

For example, Dan Kelly said stricter rules on passive investment income will hurt some small business owners that have used the method to set up retirement plans. Details of the passive-income change, which some estimate will eventually add billions every year to government's bottom line, will be released in the spring budget.