As you are probably aware, in July the federal government unveiled a consultation paper proposing the largest and most significant tax reform since 1972. These changes, if implemented, will have a significant impact on pharmacy owners, especially as it relates to tax/estate planning and investment decisions.
I strongly encourage you to further discuss this issue with your personal tax advisors and/or accountants to determine specifically how this may impact you, your business structures and your family tax planning.
I would also encourage pharmacy owners to contact their local MP before the end of the consultation period October 2, 2017. To search for your local MP, please refer to the link here which will allow you to search by postal code.
If these changes will affect you, here are a few things to mention to your elected representative:
- Pharmacy business owners do not have employer/government sponsored pensions. The current tax code allows owners to fund their own pensions. Characterizing these changes as "closing loopholes" is disingenuous because it handcuffs small businesses from effectively planning for retirement. The present value of a 25-year $70,000 annual pension necessitates an investment of $1,032,000 in year one. This means pharmacy owners need to set aside over $1 million dollars today in order to benefit from an annual $70,000 pension for 25 years consecutively after retirement.
- Pharmacy business owners employ a large number of Canadians in the communities where they practice. Implementing these changes will likely cost Canadian jobs in many Canadian communities.
- Pharmacy business owners transfer cash out of their operating companies into holding companies as a way to safely retain their earnings. These retained earnings are often deployed back into their pharmacies to fund capital projects and expansion. Limiting the use of holding companies will compromise their ability to save for rainy days.
- These proposed changes are going to add more complexity to already complicated tax submissions and create more accounting expenses for pharmacy business owners.
Mike Jaczko, BSc Phm, CIM® is a pharmacist by background, is a portfolio manager and partner of KJ Harrison, a Toronto-based private investment management firm serving individuals and families across Canada. For more information email:[email protected].