Sound Bites: Money laundering industry a big winner in Trudeau's war with small business

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From a Vancouver perspective, the Justin Trudeau and Bill Morneau war with small business over proposed tax increases makes no sense. If this duo are really interested in tax fairness, why are they not devoting the same energy and government resources to cleaning up the money laundering industry and its related big dollar tax evasions?

We keep hearing from the Prime Minister and his Minister of Fairness that they want to reform the tax system to make it more fair. This lacks credibility. If fairness were the objective, they would have quantified the dollar impact of their tax hike measures and provided revenue offsets through the broad tax rate structure. Instead, it is increasingly clear that their objective is to raise more tax revenue.

Most worryingly, the measures will hurt economic growth going forward while doing nothing to deliver anything close to social tax justice. In my submission to Bill Morneau, I focused on the so-called "income sprinkling" Extension of the Tax on Split Income (TOSI) rules and explained how destructive this will be to the small business community. These new rules will introduce a reasonableness test which will impact thousands of small businesses that pay dividends to family members. Armed with this new mandate to conduct tests, the Canada Revenue Agency (CRA) will have the power to audit, harass, and intimidate all small businesses that pay a dividend to family members.

Think of the situation where a new small business finally gets on its feet and starts to pay a dividend to a husband, wife, and two adult children working at the firm. However, sickness hits one of the members, and all the rest pitch in to help out. In the next year, the company pays out the same dividend to every family member. The CRA dogs will soon arrive because one of the family members did not contribute any work to the firm but received a dividend. So, now the family gets to deal with two challenges: a sick family member and CRA.

Should the CRA dogs be chasing small business families or money launderers? (image source: flickr)

I raise this scenario as only one of countless scenarios that CRA will have to deal with in administering the Trudeau/Morneau reasonableness test. That test will not only encourage successful small businesses to throw in the towel sooner rather later, but it will also drain resources from CRA.

Precious CRA resources will be dedicated to herding Canadian small business tax filers instead of focusing on foreign money laundering and tax evasion. The numbers at stake in money laundering in Metro Vancouver are huge. As reported by Postmedia's top notch investigative reporter Sam Cooper, one underground bank was alleged to have laundered over $200 million in cash in just one year. That's just one small organization in one city!

Most remarkably, the Feds, via filings to FINTRAC, have been routinely notified of suspicious transactions, but nothing seems to happen!

Canadians need to ask why Justin Trudeau and Bill Morneau are so focused on targeting Canadian small business families, while ignoring money laundering and tax evasion, much of which seems China-related? Is it because it is so much easier to target law-abiding tax filers than it is to investigate alleged criminal activity? Or is it something else?

Until Trudeau and Morneau provide us with a convincing answer as to why raising taxes on some Canadian business owners is a higher priority than cleaning up the BC money laundering industry, their proclamations on tax fairness will have zero credibility in British Columbia. By choosing to raise taxes on Canadian entrepreneurs before going after big time casino and real estate related tax evasion, they are putting every single Liberal Party seat at risk in British Columbia.

Talk about unintended consequences.

I discussed Justin Trudeau's decision to go after small business before cleaning up money laundering in my recent interview with Jim Goddard which you listen to or download below. You can also catch it on Howestreet.com's YouTube channel.

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