One of the things about being in a public practice firm is seeing the different ways that people go about earning a living. In our practice we have a number of small to medium size businesses, which are the driving force of the Canadian economy. Surveys, year after year, show more jobs created by these companies than by the big national and international corporations.
As well, these companies are often the most innovative. Large corporations often buy up the small companies in order to get new ideas. One need only look at the recent acquisitions of relatively new IT start ups by Google, Microsoft and others.
Unfortunately, small and medium businesses can find themselves at a disadvantage. Governments like the headlines that show some big corporation is opening a new factory or even just staying put. This might be the headline, even if there had been a net loss in jobs and the factory may have employed more people previously. And to add insult to injury, a government loan or subsidy in the billions may have been made to induce the corporation to come or stay.
Meanwhile small companies may have a hard time attracting talented people because they can’t offer the benefit packages of large corporations. Medical costs continue to rise and it is difficult and expensive for small businesses to acquire benefit packages. When I started my business over thirty years ago, I seldom saw a claim for a medical deduction, but now with annual premiums of around one thousand dollars and increasing costs for pharmaceuticals and other medical services, a medical claim on a tax return is a very common occurrence. The people who are making the claims are those who can afford the higher cost, even if it might be difficult. Many individuals now cannot afford to pay. Recent news indicates that one third of prescriptions are not filled because of the cost.
There are two problems that I can see with the tax treatment for medical expenses. First of all, before making a claim, the costs must exceed the lessor 3% of net income or $2,109 in taxation year 2013; there is no claim available if one is not taxable. Therefore, there is no taxable deduction if you are poor, although you may qualify for pharmacare in some provinces. Second, the wealthier you are, the larger your relative potential benefit. This benefit makes the ability of larger firms to attract employees easier, as they will have lower costs because of a larger staff and economies of scale.
It seems strange that governments would assist larger corporations, which create fewer jobs, by subsidizing them directly with loans and grants. Plus, the tax system is organized to provide an additional advantage.
I have a couple of ideas and would welcome any other suggestions for discussion. Group buying by the government(s) of pharmaceuticals would reduce overall costs for everyone. Pharmaceutical companies would be able to compete and bid to supply Canadians. A deduction for medical should either be removed or the percentage should be the same for everyone or better yet made a refundable claim. Medicare coverage should be more comprehensive, so small companies would have the same advantages as large corporations. Lee Iococca said many years ago that health care in Canada was an advantage that made each car thousands of dollars cheaper to manufacture in Canada. Why not assist the entire economy to be more competitive?
Terry Robert B.A., C.M.A., C.G.A.
Robert Accounting LLP
Certified General Accountants
Please note that this column deals with details and circumstances in a general way and comments are meant solely as a guide. For your protection, a professional accountant is recommended and should be consulted before making any decisions regarding anything discussed in this column.