In 2009, l left a lucrative senior position with a well established and reputable Edmonton CA firm to start my own practice. This was a difficult decision to say the least. Not only did my income stream stop, but considerable capital was required to get things rolling, which I borrowed from a bank along with personal guarantees. If this new business failed I was bankrupt – full stop.
The first year of the practice my income was $28k… a far cry from the six figure incomes I had enjoyed for some time. At the same time, the growing practice continued to require capital to make it grow. It wasn’t until somewhere around year 3 that I had any net cash flowing out of the practice (until that point it was net cash in). Despite this fact, I continued to pay income tax on the income that was generated. As there wasn’t much income to tax, I wasn’t able to take advantage of my low tax brackets in those years. Today, I have considerably more income, obviously, and use the existing rules to try to minimize the tax impact, including splitting income with my spouse, to avoid the near 50% tax rates that could apply if every nickel was taxed in my hands. As you can imagine, if I was able to average my income over the last 8 years, I’d be in a much lower tax position than today. Lumpy incomes are the norm for entrepreneurs, and the ability to split income is partial compensation for the inadequacy of our marginal tax rate system to allow for such unpredictability. Employees have the luxury of steady cash flow and steady earnings. Small business owners don’t.
Starting the practice had a massive impact on my family, to say the least. Year after year of 3,000+ hours, answering client emails in the middle of family gatherings, and generally putting the practice and my clients ahead of my family. I work when I’m sick. I cancel vacations with my family to look after client matters (twice this year). This is not the same as a government employee earning a salary that gets off at 4:30.
As I have no pension, I’m aiming to build some corporate assets so that some day, I can back off on the heavy work load and regain some of the leisure and family time forgone in the early days of the practice. Nobody’s putting money away for me. I don’t get to retire at 55, with a 75% defined benefit pension. These new rules look to put an end to my ability to save corporately.
The considerable economic and personal risk I took in 2009 (and continue to take today) was taken with the view that if I worked harder than my neighbor, I’d be successful. The business friendly tax regime in place in 2009 was a major factor in my decision to make the leap. Honestly, with the new rules proposed by the Trudeau Liberal government, I don’t think I’d have taken the risk.
I suspect many small business owners can relate to my story. Entrepreneurship can’t be taught, and it’s lessons are painful and plentiful. This is something that the trust fund inheriting overlords with their gold plated pensions funded by ordinary taxpayers will never understand. If you’ve never worried about making payroll, you just aren’t on the same page as most small and medium size business owners. The idea that we are ‘taking advantage of loopholes’ is reprehensible, offensive, simply untrue.
We need more entrepreneurs in this country not fewer.
We need more people supporting wealth creation and fewer public servants. The proposed changes will stack the deck even further in favor of the ‘get a government job’ mentality, and that’s not good for anyone. Hopefully, some common sense prevails and some sober second thought is undertaken before the proposed legislation is enacted.