Morneau's tax plan would deter families from funding startups: CFFI's John Risley
The Canadian government is not thinking through the full consequences of its proposed tax plan, according to one of the country’s most outspoken investors.
Clearwater Fine Foods Co-Founder John Risley told BNN that the effects the Liberals’ planned tax changes would have on investing in small businesses go well beyond their stated goals of achieving ‘tax fairness’.
“I understand the concept of fairness. Nobody can stand up and say ‘I have a problem with fairness,’” Risley told BNN in an interview on Thursday. “But have they really thought through the consequences of what it is they’re trying to do and whether or not that’s consistent with other really important policy points the government is pursuing?”
“If you’re a successful entrepreneur and you want to reinvest through your own company … The tax consequences under this new legislation are going to be so punitive that you’d be crazy to do it.”
Risley says the proposed new legislation will have a particularly profound impact on investing in family businesses, arguing that higher rates of taxation on riskier investments will cut down the ‘friends and family’ round of investing.
“A family member who supported another family member in a startup business – assuming that that venture turned out to be successful – that gain would be taxed at the top marginal rate, which is twice the rate at which that same member would be taxed on any gain they made by investing in a public company,” Risley told BNN.
“So, you’d have to scratch your head and say, as a family member: ‘Why on earth would I invest in my son or my brother’s business when I’ve got to make twice as much money in a far riskier venture than if I were to buy a bank stock.’”
Additionally, Risley believes that there are contradictions within the Liberal government’s stated goals in both in terms of its governing platform and the motivation for the tax changes themselves.
“I’m not suggesting that there aren’t components of the legislation that are ‘okay,’” Risley said. “But, I think if you look at the legislation in its whole context, it can have some devastating, very damaging effects on that part of the economy that other elements of the government are trying very hard to stimulate.”
“It would make investing outside the country more attractive for me, and surely that can’t be the kind of thing that the government wants to achieve.”