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Canadian Budget 2011: What Small Business Can Expect

By Julie King |

With talk that an election call could come as soon as this week, one of the main questions to ask about Canada's budget for 2011, released today by the honourable Jim Flaherty, Minister of Finance, is whether it will ever be implemented.

That remains to be seen. In the meantime, here is a summary of what Canadian small businesses can expect from the 2011 budget.

One time hiring credit for small businesses. To encourage hiring, small businesses can get a tax credit of up to $1000 against its increase in 2011 Employment Insurance (EI) premiums compared to those paid in 2010. The credit will be available to employers whose total EI premiums were at or below $10,000 in 2010.

Accelerated capital costs allowance (CCA) extended. The government will extend the 50-percent straight-line accelerated Capital Cost Allowance for manufacturing or processing machinery for another two years.

$20 million for youth entrepreneurship. The government will provide $20 million in funding over two years to Canadian Youth Business Foundation (CYBF).

$100 million for digital content creation. The government will provide $100 million / year to the Canada Media Fund for investments in the creation of digital content across multiple platforms.

$50-million Agricultural Innovation Initiative. This program will support knowledge creation and transfer and increased commercialization of agricultural innovations.

$60 million for forestry innovation. Proposed funds for 2011–12 to help forestry companies innovate and tap into new opportunities abroad.

New IRAP funding. The Industrial Research Assistance Program (IRAP) will receive $80 million in new  funding over three years to help small and medium-sized businesses accelerate their adoption of key information and communications technologies through collaborative projects with colleges.

Green funding and innovation. The government will renew funding of almost $100 million over two years for research, development and demonstrations of clean energy and energy efficiency. They will also expand eligibility for the accelerated capital cost allowance for clean energy generation equipment.

Cutting red tape & legislative changes. The government plans to lessen the compliance burden on small businesses through the Red Tape Reduction Commission and upgrading its BizPaL service. The government also plans to streamline legislation that governs trade, such as the Customs Tariff, in order to reduce the processing burden on Canadian businesses.

EDC financing powers extended to domestic market. The powers of Export Development Canada (EDC) will be temporarily extended until March 2012 so that they can provide financing support to Canadian exporters in the domestic market.

Improved tax fairness. The Canada Revenue Agency (CRA) will improve its website and by April 2012 it will introduce written electronic answers to written queries from clients using the My Business Account interface. For penalties, CRA will also review the penalty structure for the late filing of information returns, with particular regard to its impact on small businesses. Any resulting changes to the penalty structure to be announced in advance of the filing due date for the 2011 taxation year.

Credit card protections. New measures are proposed to protect consumers that will ban unsolicited credit card cheques and develop measures related to network-branded prepaid cards.

More money for financial literacy initiatives. An extra $3 million / year, in addition to the $2 million / year already provided to the Financial Consumer Agency of Canada, will be made available to undertake financial literacy initiatives.

Reactions to Budget 2011

Canadian Federation of Independent Business (CFIB) gives budget a B+, applauding the one-time EI hiring credit and steps taken to cut red tape and improve fairness in the tax system. However, they criticized the lack of action to reduce the cost of the civil service.

"In this Year of the Entrepreneur, the government took several important steps to help small businesses spend less time focusing on red tape and spend more time creating jobs and growing their firms," said Catherine Swift.  "However, given the size of the deficit, we are disappointed more action wasn't taken to reduce the cost of the civil service - particularly unfunded, overly-generous public-sector pensions."

Certified General Accountants of Canada (CGA) welcomed the support for small business, including the one-time hiring tax credit, funding for young entrepreneurs and additional funds for the Industrial Research Assistance (IRAP) program. However, they say that overall the budget falls short, as it fails to bring improvements to red tape reduction for small businesses in the short term.

 "CGA-Canada believes the government has a strong role to play in creating a positive environment for Canadian small business" says Anthony Ariganello, CGA-Canada's President and CEO. "And we believe that job is to take concrete action to improve Canada's tax system - make it fairer, simpler and more efficient. As it stands, Canada's tax system is among the most complex in the world - this hurts our economy and in particular poses a formidable challenge for industry and small business."

The Canadian Chamber of Commerce applauds the fact that there were not tax increases and welcomes the one-time hiring credit for small businesses. However, in its detailed analysis they say the government still has much unfinished business to address.

"We are pleased that this budget does not plan for any tax increases,” said Canadian Chamber of Commerce President and CEO Perrin Beatty. “The Canadian Chamber and its network have been very active in the corporate income tax debate over the last few months and our message has been heard. Canada’s low tax plan has created a healthy economic environment for business investment and we applaud the government for staying the course.”

Chartered Accountants of Canada (CICA) gave the federal budget a B+ grade, applauding the balance it struck between keeping Canada competitive while demonstrating prudent fiscal management. However, the failure to address the need to reduce the complexity of Canada’s tax regime prevented it from being given an A grade.

"This budget charts a course that will help Canada be competitive in attracting investment while establishing a fiscal framework that sets the stage for sustainable recovery and economic growth," said Bruce Flexman, Chair of the CICA’s Tax Policy Committee.

The Certified Management Accountants of Canada (CMA Canada) welcomes the commitment to innovation, education and training and the extension of the accelerated CCA rate for qualifying equipment.

"“Encouraging greater innovation and inventiveness is the best way to build a stronger more productive economy. This is not done overnight but Budget 2011 is another step in that direction," said Joy Thomas, MBA, FCMA, C.Dir., President and CEO of CMA Canada. "A long-term view of Canada’s fiscal condition and a focus on innovation – through ongoing investments in post-secondary education, basic skills training, and research and development – will help Canada’s private sector grow the economy and create jobs."

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