Business owners hoping for huge new tax breaks or juicy capital gains exemptions will be disappointed with the 2008 federal budget announced Tuesday by Finance Minister Jim Flaherty, although several low-key measures in the fiscally conservative plan promise to improve the operating environment for companies in most sectors.
“It’s a play-it-safe kind of budget, and we think that a lot of our members are playing it safe these days as well,” says Ted Mallett, VP of research and chief economist at the Canadian Federation of Independent Business (CFIB), which bases its policy positions on the opinions of its 100,000 members from small- and medium-sized business. “The government is not being too abusive on the state of the economy, but it’s not being overly negative either. We’re glad they’re taking a reasonably safe approach to looking at fiscal affairs.”
Elements of the 2008 Budget of particular interest to entrepreneurs include:
More help for manufacturers:
The budget gives manufacturers and processors some tax relief by extending the accelerated capital cost allowance (CCA), a non-refundable tax deduction that reduces taxes owed by permitting the cost of business-related assets (machinery and equipment) to be deducted from income over a prescribed number of years.
Improved EI management:
In a move to improve governance of the much-maligned Employment Insurance (EI) program, which has accumulated a massive surplus often used to fund government initiatives other than retraining and financial support for the unemployed, Flaherty announced the creation of the Canada the Canada Employment Insurance Financing Board. The Crown corporation’s legislated structure would direct monies raised through EI premiums exclusively to the EI program, generating potential savings among employers and workers alike. “Moving the EI account into a Crown corporation is a good move,” says Mallett. “It depoliticizes it, for one thing — we think it should be on good solid actuarial footing. The premiums are going to be under a better rate-setting process instead of announcements from the finance minister late every year, which makes businesses have to scramble in terms of having to set up premiums for the next year.”
A new solution to the labour shortage?:
Flaherty’s Conservatives promise to fund modernization of the immigration system with a $22-million investment over the next two years, growing to $37 million per year. They also promise to table legislation to speed up the processing of permanent resident applications, ensuring shorter wait times and making Canada’s immigration system more competitive. “This will make it easier for businesses to source people from overseas,” says Mallett.
Simplified car-expense claims:
The government promises to streamline record-keeping requirements to support motor-vehicle expense claims. “It’s a really good measure,” says Mallett, calling the old process “an extremely significant irritant.” The idea is to move to a sample mileage log; for example, a business person would use a three-month prorated average for mileage instead of keeping a record for the entire year.
Increased access to SRED:
Harper’s Conservatives are increasing the tax credits that SMEs can claim under Canada’s Scientific Research & Experimental Development tax incentive program. “[The program] is a little more accessible to SMEs,” says Mallett, “and the repayment rules are a little more relaxed.”
It will certainly make a big difference to companies that invest in technological advancement in their companies, says John Fabbro, partner in KPMG’s Enterprise practice. “If a corporation is spending $3 million per year on R&D expenditures, then that company will receive an additional $150,000 per year from the government.”
Debt reduction:
The government will continue to pay down the debt, a measure that CFIB’s members have “long supported,” says Mallet. Planned debt reduction is $10.2 billion in 2007–08, $2.3 billion in 2008–09 and $1.3 billion in 2009–10.
