It’s not often the Canadian Federation of Independent Business (CFIB) offers up a mark of A to a federal budget, but small business owners across the country should be thrilled to see several small business friendly measures. The 2015 budget includes an 18 per cent reduction in the small business corporate tax rate (SBTR) over the next four years.
Reducing the SBTR from 11 to 9 per cent over the next four years comes after years of steady CFIB lobbying and will save small firms $2.7 billion over four years ($1.2 billion per year when fully implemented). This announcement comes on the heels of Employment Insurance premium relief, new measures to address credit card fees and balanced budget legislation.
CFIB is applauds the government for lowering the tax burden on Canada’s small businesses now that the budget has been balanced. Reducing the overall tax burden is consistently viewed by CFIB members as the most effective measure the federal government could take to strengthen the performance of small firms. We’re especially pleased that government intends to legislate the full small business tax cut plan before the election.
There’s other good news for small business in two sectors important to the Nova Scotia economy. Farmers and fishers will benefit from the increase of the Lifetime Capital Gains Exemption for these businesses to $1 million as of today. CFIB’s agri-business members have called for such a measure for many years. We will now continue to lobby the government to extend this to all our members.
The provincial finance minister Diana Whalen must now take all of this into consideration when looking at tax reforms in Nova Scotia. In the 2015 provincial budget, the McNeil government kicked any significant tax policy changes (the NS Film Tax Credit notwithstanding) down the road for further consultation. This was in spite of a thorough Tax and Regulatory Review (The Broten Report) and many public consultations this past spring.
CFIB’s concern is the provincial finance department may swing it’s revenue hungry eye to the room now being made available by the feds in the SBTR. You may recall, one of the recommendations in the Broten Report called for an increase in the SBTR to pay for a big business tax reduction, something CFIB vigorously opposes.
Nova Scotia taxpayers will remember what happened the last time the federal government provided tax room by reducing the federal portion of the HST by two percentage points. No sooner had the feds provided this tax relief than finance minister Graham Steele took the opportunity in the 2010 provincial budget to hike the HST by the same two points, extracting an additional $215 million from the economy.
To assuage the business community, the Dexter government announced they would reduce the SBTR by .5 percent. In a clever sleight-of-hand it then promptly reduced the threshold of eligibility to $350,000, effectively eliminating any meaningful benefit to the small business community as a whole. So we know how that played out politically.
Since that time, CFIB has continually asked the provincial government to lower the SBTR and raise the small business tax threshold to the national average of $500,000. With the approach in the latest federal budget, we believe Nova Scotia small businesses should be able to benefit equally from this new rate drop.
Unfortunately, there are those in the Department of Finance who are doing a good job convincing the finance Minister that the small business tax rate applies to businesses that use the rate either unfairly as a tax haven or to “stay small”. It’s an odd proposition.
The argument they make would suppose business owners would opt against making another $100,000 dollars to avoid paying $15k in taxes. If it isn’t clear, business owners focus on after-tax earnings, not the tax itself. Yes, there may be some finagling on the fringes, but the vast majority of small business owners are in business to succeed and grow.
It should also be pointed out that the vast majority of all those big companies which are the darling job creators of the economists, didn’t start out with 1000 employees. K.C. Irving started with a retail gas operation in Bouctouche.
It’s also difficult to accept the logic that somehow smaller businesses would be better off with a higher tax rate. Limiting the already limited access to capital available to small enterprise would not serve as an advantage. In fact, quite the opposite.
Another rationale often floated is a lower SBTR would place larger firms at a competitive disadvantage. These are the same companies who have enjoyed the general tax rate that has been almost cut in half since the 1990s.
The McNeil government has made some very positive moves with its reorganization of the Department of Business, its focus on putting structures in place to reduce red tape and its efforts to reign in growth of the public sector.
We would encourage the Premier and the Minister of Finance to recognize the importance of the SBTR and our unfailry low small business tax threshold of $350,000. Raising the threshold to national norms and not raising the SBTR will allow small business in Nova Scotia to reinvest and the provide them with the opportunity to grow.