Stop Canada’s War On “Passive” Investment

While an unhampered market remains elusive in both countries, government policies are more anti-business in Canada than in the United States, and the gap appears to be widening. As state governments in the U.S. are trying to attract business investment, Canadian governments seem intent on granting their wishes.

As an example, Ontario’s Liberal government is responsible for high electricity costs, new labor laws (including a huge increase in the minimum wage), a cap-and-trade program, and other regulations which are prompting many businesses, including Magna International, to reconsider their plans. A report published by the Fraser Institute on October 12th tells us:

In July 2017 Magna testified at a government hearing on the proposed overhaul of labour legislation that the high cost of operating in Ontario had led it to reconsider future investments and production in the province, especially as neighboring states in the US are pursuing policies to attract investment.

Bill Morneau, Canada’s Minister of Finance, is preparing to impose further restrictions on business investment. His proposed policy will limit “passive investment” within a small business, because in his view this money should only be invested in “active business” i.e. the actual business conducted by the small business corporation.

Political Rhetoric – ‘Active’ versus ‘Passive’ Investment

Suppose you are an electrician and you operate your small business through a private corporation. As you accumulate income beyond what you feel would be prudent to reinvest in your business at the present time, what do you do with the extra money? You have already withdrawn what you need for living expenses and you don’t want to withdraw any more money from the company because the personal income tax rate is much higher than the small business tax rate. So, you leave the money in the company and invest it in the bonds or shares of a major corporation. However, Bill Morneau says this is a “passive investment” and he doesn’t want you to do that.