What's in Store for Canadian Small Businesses in Budget 2013?
By Julie King | March 22, 2013
Having Minister Flaherty and other MPs use social media to help announce this year's budget is something we hope to see in future years. The government tried to focus the discussion around its branded hashtag of #eap13, but in the social sphere the tags #bdgt13 and #canpoli soon dominated the conversation.
As tweets flew and we shared our own updates via @canadaone one thing became clear: the 2013 budget is much thinner than those we have covered in past years.
Yet as we dug deeper into Budget 2013 we found a few surprises, including new criminal charges related to the development, possession, use or sale of "zapper" technologies that can help a business hide sales from the Canada Revenue Agency (CRA).
Here is a look at highlights from this year's "Economic Action Plan" — both the mundane and obscure elements — from a small business owner's viewpoint, as well as a selection of the tweets from the past two days.
Warning: While we applaud the use of social media, unscrupulous people have posted fake tweets that contain malware links. Be sure to run real-time malware protection software and be careful about what links you click when tracking a hashtag like #eap13 or #bdgt13.
What does Budget 2013 (#bdg13 or #eap13) offer small businesses?
Unless you are running a growth-oriented small business, you will not find much in Budget 2013 to help your business.
The main gains that a typical small business will benefit from are the increase to the Lifetime Capital Gain Exemption, a one year extension of the Hiring Credit for Small Business and for some, an accelerated capital costs allowance (CCA) for investments in qualifying green technologies.
However, changes to the way dividends are taxed may result in higher income taxes for small business owners. Business owners who benefit from 10/8 arrangements, which essentially allows a business owner or wealthy individual to leverage life insurance policy loans to create a tax advantage, will also find that this loophole has been closed in #bdgt13.
Game Time. http://ow.ly/jitTD #eap13 - @JimFlaherty
A new grant and extension of a hiring credit
Budget 2013 invests $225 million to expand and extend the Hiring Credit for Small business for another year.
It also introduces a new federal grant, the Canada Job Grant, which could provide "… $15,000 or more per person, including the federal contribution and matching by provinces/territories and employers" to help Canadians gain the skills needed for employment.
The Canada Job Grant shifts the way skills training has traditionally involved both the provinces and territories working with the federal government. The funds require matching contributions from both the employer and province, which could add complications and conflict to the delivery of this money.
Supporting entrepreneurship and innovation
In Budget 2013 the government announced several investments to support research, innovation and venture capital funding. Interestingly, they have also started a new Entrepreneurship Awards competition to help promote an "entrepreneurial culture" in Canada.
Funding provided in #eap13 includes:
NRC support: The National Research Council (NRC) will receive $121 million over two years to help the growth of innovative businesses in Canada.
SME access to post-secondary research & development: Funding of $20 million over three years will help small and medium-sized enterprises (SME) access research and business development services at post-secondary and non-profit research institutions.
Incubators & accelerators: Incubators and accelerators identified as "outstanding" and "high-potential" will receive $60 million over five years to expand their services to entrepreneurs.
BDC financing for accelerator grads: In addition to direct support for incubators and accelerators, Budget 2013 makes an additional $100 million available to firms graduating from business accelerators through Business Development Bank of Canada (BDC) financing.
Youth entrepreneurship: The Canadian Youth Business Foundation will receive $18 million over two years to help young entrepreneurs grow their firms.
Lifetime Capital Gains exemption increased...
Small business owners, farmers and fisherman will now have an $800,000 Lifetime Capital Gains Exemption and the limit in future years will be indexed to inflation. This is the second increase to the exemption limit; in 2007 it was raised to $750,000 from the $500,000 limit set in 1988.
... but dividends and other tax loopholes take a hit
Budget 2013 may not have contained any new taxes, but many small businesses shareholders will feel the sting of higher income taxes with changes to the dividend tax credit.
"Because the corporation small business rates have dropped substantially over the past years, it has been an advantage to pay yourself a dividend rather than salary," explains Wayne McDougall, chartered accountant with Brudner, Herblum & McDougall LLP. "This is a realignment to bring the corporate taxes and personal taxes back in line with the tax treatment on salaries."
"This is a hindrance to small business growth and development," says McDougall, who explains that the tax advantage offered by dividends also encouraged small business owners to leave profits in the business to help the business grow.
Also, in #bdgt13 a tax credit that gives a tax break to individuals who purchase shares of LSVCCs will be phased out. The current tax credit will remain in place when claimed for a taxation year that ends before 2015 and will then be reduced to 10 per cent for the 2015 taxation year, 5 per cent for the 2016 taxation year and be eliminated entirely for 2017 onward.
Finally, the tax loophole that allowed small business owners and wealthy individuals to leverage life insurance policy loans, popularly known as "10/8 arrangements", is being closed.
Manufacturing, forestry and sustainable technologies get a boost
With its renewal of funding for the Federal Economic Development Agency for Southern Ontario (FedDev Ontario), which will provide $920 million over five years, the government will also direct $200 million of that funding to support a new Advanced Manufacturing Fund in Ontario, starting on April 1, 2014.
Budget 2013 will also invest:
$325 million over eight years to Sustainable Development Technology Canada to continue support for the development and demonstration of new, clean technologies.
$92 million over two years starting in 2014 to support innovation and market development in the forestry sector.
Accelerated CCA supports manufacturing sector and green investments
Budget 2013 will extend the accelerated capital costs allowance (CCA) for the purchase of machinery and equipment for the manufacturing and processing sector for another two years, reverting to the regular 30-per-cent declining-balance rate for eligible assets acquired in 2016 onward.
The budget notes: "… manufacturing and processing machinery and equipment that would otherwise be included in Class 43 and that is acquired in 2014 or 2015 will qualify for the 50-per-cent straight-line CCA rate."
Budget 2013 also provides an accelerated CCA rate of 50 per cent per year on a declining basis for investment in specified clean energy generation and conservation equipment.
Anti-fraud measures affect SRED, GST/HST and "zappers"
With Budget 2013 the federal government has added several anti-fraud measures. Three affect small businesses in Canada.
- SRED: The Scientific Research and Development (SRED) tax credit program will now require additional information on the tax preparer and billing arrangements for the submission of SRED claims, including whether contingency fees were used and the amount of the fees payable. Budget 2013 proposes a new penalty of $1000 for each instance when this information is missing.
The government is also investing $20 million over two years to the help CRA "… improve the predictability and enhance enforcement of the Scientific Research and Experimental Development tax incentive program."
HST/GST: HST/GST refunds may now be withheld if a business does not provide the required information needed for the Canada Revenue Agency (CRA) to authenticate the business, a measure introduced because the $100 penalty currently in place was not enough of a deterrent.
Zapper software: The government has also introduced stiff penalties and possible criminal charges to help stop companies from using electronic suppression of sales (ESS) or "zapper" software, which hides sales by selectively deleting or modifying transactions from point-of-sale and accounting systems. Fines of up to $100,000 can be applied for the development, possession, use, sale or possession for sale.
It is also now a new criminal offence to use, possess, acquire, manufacture, develop, sell, possess for sale, offer for sale or otherwise make ESS software available. A summary conviction will have a fine of up to $500,000 or up to 2 years imprisonment. On conviction of indictment the fine rises to not less than $50,000 and up to $1 million or up to 5 years in prison.
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