‘A missed opportunity’ for Liberals
Small-business advocate says carbon tax rebate will still equal a ‘net drain’ for many companies
The federal budget brings a win for small businesses, but fails to address the soaring costs they face, according to the Canadian Federation of Independent Businesses (CFIB).
“The message could be, ‘Don’t bother starting a business, because if you grow at all we’re going to tax the heck out of you,’ ” said Dan Kelly, president of the CFIB.
In her budget, Finance Minister Chrystia Freeland announced a carbon levy rebate for small businesses. The money is part of the federal fuel charge that has been collected from businesses that the government promised to return for the past five years.
It’s been something the CFIB had advocated for, but Kelly said the total represents only a portion of funds businesses have poured into the program.
“Businesses are estimated to pay 40 per cent of the value of the property tax, but they only get back now five per cent of the total revenue in rebates,” he said. “So there still is a net drain from small businesses to fund the carbon tax.”
Through the new tax credit introduced into the budget, the group estimates businesses in Ontario, Manitoba, Saskatchewan and Alberta will receive a one-time payment between $2,600 and $7,000. Four Atlantic provinces who joined the program at a later date — New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador — are estimated to receive between $630 and $1,060.
In addition to an increase in the lifetime capital gains exemption from $1 million to $1.25 million, the budget also proposed the Canadian Entrepreneurs’ Incentive, a program set to reduce the inclusion rate for capital gains to 33.3 per cent on a lifetime maximum of $2 million in eligible gains. However, that seems to be where the winning stops, according to Kelly.
Despite rumours surrounding tax hikes prior to the budget’s release, the commitment to raise the inclusion rates on capital gains tax for corporations and individuals earning beyond a certain threshold, caught him off guard.
For individuals, the taxable portion of capital gains above $250,000 would rise from half to two-thirds and for corporations and trusts, all capital gains regardless of amount will be taxed at up to two-thirds of the inclusion rate.
The Liberals say the hike in capital gains will provide nearly $20 billion in revenue over five years. If adopted the new rules come into effect on June 25.
Although small businesses are supposed to be largely unaffected Kelly worries medium-sized businesses owners will be the net losers.
“It’s not that hard to start a business, but it is pretty darn hard to grow your business from small- to medium-sized and then mediumsized to large,” he said. “The capital gains change is going to disincentivize business owners doing the incredibly heavy lifting that they need to do to get their business to a larger level.”
With small businesses facing a plethora of economic challenges, resulting in a skyrocketing insolvency rate in the fourth quarter of last year, the budget missed any type of relief toward the major costs and charges facing businesses. This comes after 77 per cent of small businesses surveyed last month wanted the government to address the soaring costs of doing business, with a further 74 per cent seeking an overall reduction in business tax.
“It seems to have been missed by the government that there have been, for several months now, more businesses exiting than entering the Canadian economy,” he said. “We have had net business closures month after month for several months in a row now.”
Adding to the cost of doing business, said Kelly, is a further increase in employment insurance premiums on top of the recent alcohol and carbon tax hikes at the beginning of April. It’s a plan that overshadows small businesses’ “win” in receiving the carbon rebate, Kelly added, as despite tax hikes the government has yet to introduce a plan to bring the budget back to balance.
“We were hoping that there might be some lighter corporate income tax treatment for small firms, like the lowering of the small business rates or raising the small business tax threshold or perhaps lower employment insurance rates for small businesses,” he said. “None of that happened, it was a missed opportunity.