GUINEA PIGS

THE CONTRARIAN

 

There are very small businesses, otherwise known as hobbies. There are larger ones such as owning a rental property or properties, or a retail shop or a farm, and there are large businesses with multiple employees.  There are different rules on financial reporting for different sizes of businesses.

The rule for farms is anything below $7 000 gross income is a hobby, not a business, and I think this pretty much applies to all hobbies. If you account your hobby/business according to the rules larger businesses use, expensing and depreciating everything in sight, it is very unlikely to have a net income, and they do not want you making little claims for business losses on what is really a hobby.

The next milestone is that businesses grossing less than $30 000 do not need a ‘business licence number’, or to report for GST purposes, saving another whole layer of hassle and red tape.

As a business grows in size and complexity beyond hobby scale, government red tape becomes an issue, blocking growth in many ways, not least in financial reporting and even quite small businesses need an accountant.  An example, one year I got an imperiously worded (you might say snotty) letter from Revenue Canada.  I didn’t really understand it and don’t remember exactly, it was along the lines of “the ratzerfratser is reported as a gimcrack in error according to section 24, subsection 18, and you owe us $2500, pay us immediately”.  I took it to my accountant, and he wrote a letter saying ‘the ratzerfratser is indeed a gimcrack, according to subsection xyz, and we don’t owe anything’; the government responded ‘OK, have a nice day’.  So having an accountant saved me $2500.

I asked the accountant what it all meant, and here is his answer translated into my language.  “The government claim was that rabbits are not taxable, but guinea pigs are, and as my rabbit had short ears and no tail they interpret that he is in fact a guinea pig and I have to pay.  My accountant replied that it is a lop-eared rabbit, and was sitting on its tail as it was cold out, so he is indeed a rabbit and not a guinea pig and we do not have to pay.”  He said this kind of stupid stuff is kicked out by a computer, and the governments generally do not follow up if they get a reasonably intelligent reply as the amount of money is not worthwhile.

The economy grows by entrepreneurs trying new ideas and starting new businesses, not by big businesses eating up patronage government grants, and certainly not by bureaucrats tinkering with interest rates and ‘stimulus’. If we want to grow the economy, a good place to start would be to raise the bar on having to report as a business, that $7000 limit to being treated as a hobby could be raised to say $15 000, and that $30 000 could be raised to $50 000 or more.  In fact, adjusted for inflation, these limits would still be less than when these rules first came into force.

What a simple and easy way to “help the middle class”, instead of treating small business as ‘a tax dodge’, encourage them to grow into bigger businesses. Grow the economy by encouraging the future Bill Gates’ and Mark Zuckerberg’s to get out there and start businesses.

 

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