Before I dive into this week’s blog post, about how important a lawyer and accountant is to the small business, I’m looking to gauge whether there’s interest in doing an Ask Jeff webinar and/or an in-person meet-up in Toronto. Click the link if you’re interested in learning more.
Now back to regular programming …
I was quite disheartened by a conversation I had with my accountants the other day.
My accountants are great. As far as I’m concerned, and with my limited knowledge of the tax system, they’re doing an excellent job.
My concern has more to do with the complexity of Canadian tax and the process through which a business person has to meander in order to ensure two things:
- They’re paying the right amount of tax.
- Their business affairs are coordinated in as tax-efficient a manner as possible.
No amount of tax collected ever seems to be enough for the federal coffers. Worse is the arrogance of the politicians who believe that they can continue to take without much accountability, spend on new programs, collect billions of dollars from small business owners on one hand, and then call those same business owners tax cheats on the other.
Since many of my readers are not from Canada, I’ll provide some background context.
During the summer of 2017, Canada’s Prime Minister Justin Trudeau, in his attempt to “level” the regressive Canadian tax regime, accused the small business taxpayer of being a tax cheat. He then suggested that the small business owner wasn’t paying their “fair share” of Canadian tax.
Our prime minister’s arrogance angered the small business community, causing an uproar. The minister of finance was forced to not only backtrack on the PM’s comments but scale back the new taxes aimed at the small business owner/entrepreneur.
The same conversation is now happening in the USA, as the political landscape heats up in anticipation for the 2020 election. One of the politicians is suggesting a 70% tax rate.
30 Days to a Better Business
I can teach you how to build a successful, profitable business, and turn that into millions in personal wealth.
Interestingly enough, in Canada, the government raised taxes, and yet the subsequent year, tax collection from that same group went down. Here’s the headline from the Globe and Mail: High-income earners paid $4.6-billion less in taxes in 2016 despite higher rate for top 1 percent.
There comes a point when raising taxes actually produces a negative result, where the tax system becomes regressive and acts as a disincentive for future growth.
The Laffer Curve
The Laffer Curve is a term I learned many years ago in economics. The curve shows the amount of tax collected as it relates to the tax rate. The chart demonstrates that the tax system reaches a point where every incremental additional dollar produces a negative return, as taxpayers either leave the tax system altogether or rearrange their tax affairs to minimize the taxes paid.
As the Canadian tax discussion was happening during the summer of 2017, I was in the midst of an M&A process to sell the majority share of my business. The thought occurred to me many times during that period that I pay an inordinate amount of tax. I pay my fair share, but our people, entrepreneurs, have now been vilified by the prime minister for not paying their fair share. What Canada was looking to do to the small business community was myopic wealth confiscation in the self-serving interests of pandering to their voter base. It wasn’t good business.
The high tax rate as it now stands is a disincentive to own, and/or manage, or grow another business. It’s Canada’s loss, and I know there are many other entrepreneurs who feel the same way.
Is 60% enough?
Yes, you read that right.
Canada’s tax rates vary by province but can reach upwards of 54% in Nova Scotia and 53.53% in Ontario on earnings over $220,000. The problem is, the Canadian taxpayer also pays a consumption tax—which can near 15% in some provinces—real estate tax on homes, and other taxes and fees for government-provided services (think highways, licenses, airport fees, and so on).
So What Does an Entrepreneur/Business Person Do?
Enter the Lawyer and Accountant to the Small Business
I have a number of clients who I am consulting with. We discuss, strategize on ways to increase sales, improve leadership skills, position the business for growth, improve profitability, and create wealth.
When you live in a country that takes up to 60% of every dollar that you earn, it’s in your best interest to position your business affairs in a tax-advantageous manner to legally minimize tax.
When you’re paying up to 60% tax, every extra dollar that you provide to the state is one less dollar in your pocket. And you need those dollars to expand your business, hire more employees, invest in infrastructure, and spend on services. The dollars you spend end up back in the economy, which grows the overall GDP.
There’s an expression: a rising tide lifts all boats.
The things I suggest an entrepreneur do are not tax evasion. I’m speaking about hiring the most kickass accountant and lawyer that you can find. Share your business goals and your current financial situation and then let them help you arrange your personal and corporate financial affairs so that you can legally minimize your tax.
The absence of that means you end up giving the government more than their “fair share.” Again, the less in your pocket means the less you have to grow your wealth.
So getting back to my clients and other fellow entrepreneurs who I connect with…
Clearly, the larger the business and the wealthier the individual, the more certain you can be that they have a tax accountant and lawyer advising them.
I was speaking with one of my clients a couple of weeks ago.
This client runs a VERY profitable business. He has been so busy growing his business, managing his staff, and dealing with his personal life (what limited personal life a busy entrepreneur has) that he hasn’t consulted with an accountant yet.
His bookkeeper prepares his personal and corporate taxes. But he has been too busy to set up, or look into setting up, any sort of corporate structure.
If you are serious about growing your wealth, please heed my advice and hire a top lawyer and accountant, ideally from one of the large accounting firms. Hire them early on and pay them to help you build a tax advantageous structure.
There’s no such thing as getting a “good deal” on your accounting service.
You get what you pay for.
The first challenge is building a business, so focus on that first. If you’ve passed that hurdle, and your business is making profits, be sure to consult with the right professionals to help you along the way.
Don’t cheap out, and if you’re in the fortunate position of having a successful business, then start the process now. Don’t wait. Hopefully, you now realize how important a lawyer and accountant is to the small business … and if you need a referral to either, someone who I trust and have used in the past, then email me.
P.S. if you haven’t already done so, I would appreciate your feedback with my reader survey.
If you liked this post, you might also like this one: I Love You, You’re Perfect, Now Change. Five Things You Can Do To Become a Better Boss
Download my book and Amazon bestseller (number 1 in business, number 1 in non-fiction). You can get your FREE copy here.