Question Period Note: CUTTING TAXES FOR CANADA’S GROWING SMALL BUSINESSES

Is the government reducing the phase out of the small business tax rate and ensuring that the tax system does not hold back growth?

• A competitive tax rate is critical for the success of Canada’s small businesses and to the country’s economic recovery.

• That is why Budget 2022 proposes to cut taxes for Canada’s small businesses by allowing them to take advantage of the low small business tax rate until their taxable capital reaches $50 million, rather than $15 million.

• This change would also allow more medium-sized businesses to benefit from the reduced rate.

• The proposed change will encourage small businesses to continue growing and creating jobs.

• This would deliver an estimated $660 million in tax savings over the 2022-2023 to 2026-2027 period that can be reinvested towards growing and creating jobs.

• This measure would apply to taxation years that begin on or after Budget Day.

The Government of Canada provides a range of incentives to encourage investments in growing businesses.

Small businesses currently benefit from a reduced federal tax rate of 9 per cent on their first $500,000 of taxable income, compared to a general federal corporate tax rate of 15 per cent. A business no longer has access to this lower rate once its level of capital employed in Canada reaches $15 million. However, phasing out access to the lower tax rate too quickly—and then requiring a small business to pay more in tax—can discourage some businesses from continuing to grow and create jobs.

Budget 2022 proposes to phase out access to the small business tax rate more gradually, with access to be fully phased out when taxable capital reaches $50 million, rather than at $15 million.

The government is also undertaking a review to assess whether the tax system is providing adequate support to investments in growing businesses. The review will include an examination of the rollover for small business investments. This measure allows investors in small businesses to defer tax on capital gains.