Tax Impacts on Female Self-Employed

When the federal government proposed changes on tax policies for private corporations last summer, some lawyers expressed significant concerns.

The Canadian Bar Association (CBA), the largest legal organization in Canada, launched a campaign against these measures. In one letter, as part of a coalition for small business tax, they stated,

These are not minor amendments, but are sweeping changes that will affect all sectors of Canada’s business community and we ask that you not move forward with these proposals. Instead, the organizations listed below stand ready to meet with you and your officials to offer our support and ideas for measures to address any shortcomings in tax policy affecting private corporations.

Some CBA members objected to the organization’s stance, noting that proper taxation measures play an important role in creating a just society.

In the Winter 2017 issue of National Magazine, I proposed that perhaps both could be achieved,

An effective justice system could be described as a hallmark of a civilized society. Without legal institutions, individuals and businesses lack effective conflict resolution systems. Not only does this create uncertainty for capital investment and commercial activities, but, at worst, these disputes can devolve into violence.

Maintaining a legal system that works effectively, however, does not happen without significant support from government in the form of administrative services and other funding. For this reason, there is a deep and necessary relationship between the legal profession and the payment of taxes…

The new federal budget, introduced this past week, may have achieved that balance. In addition to scaling back some of the tax measures proposed, now limited to reduced access to the small-business tax rate if passive income exceeds $50,000, and limited access to refundable taxes for better tax integration.

Justin Ling has summarizes how the budget includes a cash infusion for the justice system,

Amid longstanding concerns that Canada’s court system is underfunded to address the volume of cases it currently faces — a concern exacerbated by the 2016 Supreme Court ruling in R. v. Jordan, which set strict timelines on trial delays — this year’s budget does offer some new money to help the courts cope.

The budget allocates $75 million for the courts themselves, as well as additional $77 million to expand family courts, as well as another $13 million for access to justice programs and legal aid for immigrants and refugees, all over the next five years.

The budget also allocates money for the Tax Court to address tax avoidance and evasion, and provides additional funds for Bill C-65 for workplace harassment and violence, which isn’t a surprise given the focus the budget has generally on gender inequality.

However, this is one aspect of these tax changes that haven’t been properly addressed, despite all the discussions around gender inequity. For many self-employed professionals operating under a professional corporation, there is a disproportionate impact on women.

I sat down today with Sara Baum, a third-year law student at Queen’s, who explored the disproportionate impact on women from these reforms in her tax law class with Arthur Cockfield. The special benefits provided to employed women, such as maternity and parental leave, are typically not available in the same manner to self-employed women, who rely on additional corporate income to provide themselves these funds during less productive income earning periods in their lives.

Sara Leamon, a criminal defence lawyer in Vancouver, stated in The Georgia Straight,

If his tax reform laws are to move forward, many people will suffer. First and foremost—young female professionals…

It is likely to affect anyone—particularly women—who intends to rely on income sprinkling in order to support themselves and their young family without access to paid parental leave, no matter what their discipline.

However, Baum suggests that income sprinkling, which is still intended for reform under the current budget, is far more extensively used by men than it is women, typically seeing a reduction in female labour force participation. She cites MacDonald and McInturrff, who state,


While an interesting example of inverted gender roles, in reality only 7% of families are made up of a sole female earner and one spouse who stays home (i.e., 93% of the time a sole male earner or both spouses have paid employment).

Instead, affordable childcare and other social services, which require additional taxes, are more likely to address the gender disparities.

Although amendments to the Employment Insurance Act through the Fairness for the Self-Employed Act made in 2010 allowed self-employed Canadians to opt into employment insurance to allow for special benefits that would mirror those who are salaried, Baum identifies the following deficiencies as it relates to self-employed women:

  1. individuals must pay premiums into the program for at least a year;
  2. if the claimant or business generates earnings while receiving a special benefit, the government can reduce the amount paid;
  3. calculation of benefits is based on the previous calendar year alone, which may not be appropriate for self-employed individuals with far more variable income;
  4. after receiving a benefit from the program a self-employed individual can no longer opt out in the future, potentially making these payments unwieldy and inefficient; and,
  5. eligibility requirements are modelled on the EI special benefits available to paid employees, and may exclude some individuals.

The attrition of women in law has been a significant concern in Canada, with the lack of adequate benefits playing a crucial role. The Law Society of Ontario’s “Retention of Women in Private Practice” program a decade ago may have helped, but has failed to stem the flood of women leaving the law, as identified by organizations such as the Criminal Lawyers’ Association last year. These lawyers, especially given their self-employed nature, are the most likely to leave the law related concerns,

One of the most common concerns raised by women at various stages of their careers was regarding the challenges associated with taking time off to start a family when working in private practice…

Being able to take an actual maternity leave was also a concern raised by a number of focus group participants, as those outside of large law firms did not have the benefit of a formal (paid) leave. Several indicated that this was a big difference between defence counsel and those working for the Crown, where maternity leave was seen as a non-issue, as the structure of the Crown’s office allowed for parents to take a leave as others would be there to cover the workload until they returned.

These concerns appeared more pronounced in Toronto than they did in smaller urban centres.

The retention of female lawyers in the profession must remain a priority if we are going to observe a shift in the gender balance among the more senior members of the profession, especially in positions of leadership. Like all issues of diversity, this is a matter of credibility and integrity for the profession.

The proposed federal tax changes, which play a small role in retention issues, should be highlighted in particular for what is likely to be a disproportionate impact on female self-employed lawyers.

Solutions to ameliorate these impacts can come from the government, but the responsibility will ultimately also fall on the rest of the profession, perhaps in greater assistance with strategic planning and tax structuring. Professional organizations such as the CBA, as well as members of the bar with greater expertise in these areas, can take an important leadership role in this regard.


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