Budget 2013 provides some tax relief for small business owners, most notably a $1,000 Employment Insurance (EI) hiring credit.
And there’s no need to apply. The CRA will automatically calculate it when owners file 2013 tax returns, reducing red tape and delays.
“As payroll taxes have gone up in Canada, EI has gone up,” says Dan Kelly, president and CEO of the Canadian Federation of Independent Business (CFIB). “The hiring credit will help reduce pressure for small businesses and they’ve made it accessible to a large number of additional firms.”
The credit is available to employers with total EI premiums of $15,000 or less in 2012. This, say the Budget documents, means Canada’s estimated 560,000 employers will be able to reinvest about $225 million in job creation this year.
There’s also a major break for business owners who sell a company, or freeze its value to disburse shares to family members.
The lifetime capital gains exemption will increase from $750,000 to $800,000, and will be indexed to inflation — a first. The first adjustment will occur for the 2015 tax year.
“Small business owners may not have a lot of other investments, and count on the value of their businesses to fund a large part of their retirements,” says Kelly. “This increase is tremendous, and more importantly the indexation to inflation.”
But the Budget wasn’t all good news. Ottawa plans to reduce the dividend tax credit, meaning more tax for business owners who take money out of their corporations.
“Dividends are going to be taxed at a higher rate in the hand of the shareholder,” says Bill Ruskin, partner, Clark Wilson LLP.
He estimates the increase could be as much as 2%.
Kelly admits this is worrying. “But [the government] did reference that once the Budget is balanced, they’ll look at a reduction in small business taxes. We’re pleased with that, and we’ll be actively lobbying them to reduce the small business corporate tax rate to accommodate the change on the dividend side.”
Other notable items
The Budget’s inclusion of a Canada job grant got mixed reviews.
It would provide $15,000 or more per person to receive training. Businesses planning to train Canadians for an existing or better job will be eligible to apply.
“If I’m a small business owner, I’m watching for incentives like that to know I can take on staff and they’ll get some form of training,” says Stanley Tepner, first vice president and investment advisor with The Tepner Team at CIBC Wood Gundy.
But Jordan Gould, partner at Richter LLP, isn’t as enthusiastic.
“Most government spending in terms of job grants is very difficult for small business owners to access,” he says. “The red tape and bureaucracy to apply for the program can be onerous. It’s often just not worth the time and effort.”
He says the grant might be more suited to larger corporations that can devote resources and time to the application and management of the process.
“I’d much rather see lower tax rates across the board,” says Gould. “Let business owners figure out how to best hire and train by paying less tax in the first place. The more money they get to keep, the more they can reinvest in their businesses.”
Tepner advises small firms to ask accountants how to “take advantage of the free money the government may make available.”
He references the Budget’s proposal to eliminate all tariffs on baby clothing and sports and athletic equipment.
“If you own a hockey or golf store, you may want to increase your inventory,” he says.