BRIEF FROM THE
CANADIAN AUTOMOBILE DEALERS ASSOCIATION
Overview
The Canadian Automobile Dealers Association (CADA) is the national
association for franchised automobile dealerships that sell new cars and
trucks. CADA deals with national issues that affect the well-being of
franchised automobile and truck dealers. The association also advocates dealer
views and concerns to Parliament, federal agencies, the courts, the public and Canada’s automobile manufacturers.
We represent over 3,000 active small and medium-size businesses.
Our members employ over 130,000 Canadians in every province, city, town,
village and hamlet in the country. The House of Commons Finance Committee’s
request for input on federal spending priorities comes at a critical juncture
for our economy.
Pre-Budget Submission
CADA acknowledges the extraordinary efforts made by governments of
all levels in recent years to enact measures designed to stimulate a
recessionary economy in general, and to support the automotive industry in
particular. Though these were very difficult steps to take at the time, the
results we are now beginning to see demonstrate that it was the necessary and
right thing to do.
In the context of an economic recovery that is still far from
certain, particularly given our strong ties to the U.S. market which still suffers
from stubbornly high unemployment and a housing market still in chaos, our
recommendations will focus on the need to restore economic growth that is
sustainable and self-fulfilling.
Recommendation
Establish fairness in the access to the Small Business Deduction
for automobile dealers
Most automobile dealers are small businesses run by entrepreneurs
and family members.
The Small Business Deduction (SBD) is a vital component to a
reinvestment strategy. The SBD helps to defer income tax until such time as an
owner withdraws profits. Unfortunately, the level of the SBD is inadequate to
meet the requirements of most automobile dealers. Not only is the deduction
inadequate, but access is frequently and unfairly denied to automobile dealers.
An automobile dealer begins to lose access to the SBD once his
accumulated taxable "capital" exceeds $10 million and is eliminated
at the $15 million threshold. This is unfair to capital intensive industries
like automobile dealerships. Other less capital-intensive businesses of similar
size and profits enjoy far greater access to the SBD.
There are two issues that compound the problem in the manner that
"capital" is computed:
· First, a corporation's "capital" is defined to include
all forms of indebtedness, including lien notes (the method by which automobile
dealers finance inventory). Most retailers finance the acquisition of their
inventory through trade accounts payable, which are not included in the definition
of capital. This discrimination against automobile dealers is an unwarranted
and unjustified tax penalty.
· Secondly, "capital" includes assets or investments of
other corporations with whom the dealer is associated. In these circumstances,
the capital of different businesses is aggregated, which, if certain thresholds
are met, will result in the loss of the SBD.
CADA Proposals
· Eliminate the "grind" on the SBD for private
businesses.
· Taxable capital should be redefined to exclude 'lien notes'. This
unintended imposition has already been remedied in some of the provinces that
levy taxes based on a business' capital.
· Allow more flexibility in the definition of associated
corporations for purposes of allocating the SBD.
· The SBD should be increased to $1 million.