Budget 2007: The impact on SMEs

Was Budget 2007 a good one for small and medium-sized businesses? The jury's still out.

For Emad Rizkalla, president of St. John's-based Bluedrop Performance Learning, finance minister Jim Flaherty's budget failed to deliver what Canadian entrepreneurs need most: improved access to international markets.

“SMEs need help getting onto the world stage — that's where the growth happens,” he said. “That obviously wasn't a priority this time.”

Rizkalla, whose e-learning firm has six offices in Canada and the United States, says Ottawa's failure to include spending for enhanced trade agreements or export marketing initiatives puts Canada's small and medium sized businesses at a disadvantage internationally.

“We're competing against Australian and US firms whose governments are pouring money into helping them export,” he said. “There's too little of that in Canada — and we're hurting.”

The minority Conservative government's 2007 federal budget contained several measures designed to spur capital investment and reduce compliance headaches for small businesses and manufacturers. The lifetime capital gains exemption will rise from $500,000 to $750,000 for small business owners, farmers and fishers. Manufacturers will be able to write off capital investments in machinery and equipment acquired between March 18, 2007 and the end of 2008. Using a 50% straight-line rate, the accelerated capital cost allowance (CCA) will cut the time it takes to write off new equipment from an average of 11 years down to two. The budget also enhances the CCA rates for non-residential buildings and computers.

New federal incentives would also encourage the provinces to eliminate their own capital taxes by 2011. In addition, the budget introduced measures to ease tax-related paperwork by 20%, making it easier for small and medium sized businesses to file their taxes.

“This is a big budget for small business,” says Garth Whyte, executive vice president of the Canadian Federation of Independent Business (CFIB). In the weeks leading up to the tabling of the budget, the CFIB lobbied hard for enhancements to the capital gains exemptions and “paper burden” relief, bombarding MPs with more than 30,000 letters. But while the budget addressed the CFIB's top priorities, including diverting a majority of the country's $14.1 billion surplus to debt reduction, Whyte says the Conservatives' spending — $2 for every $1 in tax cuts — is concerning. “We'll be watching that closely.”

Brent Byers, vice president of Brampton, Ont.-based APPS Transport Group says the “Liberal style” spending spree doesn't address a crucial problem facing his business: congestion and gridlock in Ontario's Golden Horseshoe.

“Our infrastructure is years and years behind the demand. (Ottawa) threw some money at it, but there's no strategic plan.”

Myron Knodel, manager, tax and estate planning with Investors Group, says the budget did have a strategic plan — but it was directed to families, rather than entrepreneurs. “There was not a lot here for business,” he says, pointing out that measures such as the capital gains exemption fell short of Conservative election promises. “There was lots of anticipation of broader based tax reductions and capital gains relief,” he said. “In the end, it was a bit of a letdown.”