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June 16/2010 -- KFC on Mount Pleasant Road and Davisville Avenue during a lunch hour rush. June 16, 2010 Photo by Sarah Dea/The Globe and Mail Digital Image (Sarah Dea/The Globe and Mail)
June 16/2010 -- KFC on Mount Pleasant Road and Davisville Avenue during a lunch hour rush. June 16, 2010 Photo by Sarah Dea/The Globe and Mail Digital Image (Sarah Dea/The Globe and Mail)

Commentary

A sector poised for growth in a stalled economy Add to ...

There’s nothing like the end of one year and the start of another to bring out the armchair fortuneteller in me. So assuming the Mayans were wrong – and the world will continue past this Friday – the next two columns will discuss some of my small business predictions for 2013.

First, given that my (non-Mayan) investment adviser suggested that I liquidate all the stocks in my RRSP before December 21, I suppose I can’t help being a little skeptical about 2013. The never-ending financial crisis in Europe, the so-called ‘fiscal cliff’ in the United States and tensions in the Middle East do not instill much confidence in the world’s economy.

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Ironically, I do see further growth in franchising in Canada in 2013. I still expect to see more U.S. franchisers expand into the Canadian market, particularly Ontario, Alberta, B.C. and even Saskatchewan. In part, this may be because the U.S. is saturated with franchised concepts that have nowhere left to expand, so they have to go ‘international.’ Canada is close and not all that different.

Canadians interested in acquiring new franchised concepts still have the ability to borrow on the equity in their homes because unlike their American cousins, there is still equity in their homes to borrow from! Mind you, if real estate prices plummet in places like Toronto and Vancouver, or interest rates rise, this will have a serious effect on the franchise industry – not to mention countless other industries in Canada.

As for the types of franchised businesses, I still expect to see more mobile franchised business concepts and home-based systems in the next year or two. Armed with a truck, a brand, and a business system, a franchisee needn’t burden itself with the high cost of building out expensive premises or entering into a long-term lease for bricks and mortar locations. With lower costs of entry, the ability to locate one’s office at home and the benefits of Internet marketing, prospective franchisees without buckets of cash may find these sorts of businesses appealing and affordable. Expect to see more junk hauling, moving, painting, gutter repair, home renovation, pet grooming and other personal services businesses in Canada in 2013.

As a result of a province-wide referendum on the HST in B.C., not to mention a total mishandling of the HST file by the current B.C. government from the get-go, British Columbians, who have had a 12 per cent HST on all goods and services for over 2 years, will return to a 5 per cent GST and a 7 per cent Provincial Sales Tax on April 1, 2013. This will be a huge boondoggle for the ‘cash register businesses,’ which will have to re-program every POS system in the province to deal with the return of the old, byzantine, PST. Accountants and tax lawyers will be very busy advising their clients how to deal with the transition back to a tax that mainly applies to goods and not services, where there are a multitude of complicated exemptions and where there is no input tax credit to collect.

Ironically, legal services will be taxed at the 7 per cent PST rate, but PST will not be payable on accounting services and all the other services that British Columbians have been paying HST on since the blended tax came in. This begs the question that has been asked for 20 years: Why tax legal services and not accounting and other services?

The cost of services, like restaurant services, real estate agent services, accounting services and all other services where GST is applicable will ostensibly go down by 7 per cent April 1, unless those service businesses use the PST transition to increase prices in the ordinary course by, say 7 per cent (because consumers were paying it anyway). We shall see.

Frankly, the move to tax goods and services, especially when demographically, boomers with money are buying more services than goods – since they already have enough stuff that was taxable. Indeed, one might expect a new NDP government to look to tax services in its first term but under the PST.

Finally, if I were a betting man, I wouldn’t put too much stock in historically low personal and corporate tax rates continuing. Whether its Ontario’s high debt (illustrated in the Drummond Report) or the massive debt B.C. taxpayers have to pay the federal government (and others) since the province voted to abolish the HST, provincial debt in Canada can’t be wished away. Increases in corporate and personal tax rates may very well be the solution provincial governments adopt to deal with the existing debt, low resource revenues and on-going costs of education, heath care, the justice system and other social services that have been underfunded over the past decade.

So 2013 doesn’t look all that pretty. But then again, the book I enjoyed the most this year was Jeff Rubin’s The End of Growth; the message being ‘get used to low (or no) growth.’

Tony Wilson is a franchising, licensing and intellectual property lawyer at Boughton Law Corp. in Vancouver, he is an adjunct professor at Simon Fraser University (SFU), and he is the author of two books: Manage Your Online Reputation, and Buying a Franchise in Canada. His opinions do not reflect those of the Law Society of British Columbia, SFU or any other organization.

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