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Federal Budget 2012: What’s in Store for Small Business in Canada

By Julie King |

Calling Canada's 2012 budget, Economic Action Plan 2012, "substantial" and "long-term", Finance Minister Jim Flaherty unveiled the 2012 budget at 4 pm EDT today.

There is no question that this is a budget for small and medium sized enterprises (SMEs) focused on innovation. However, when it comes to small companies not in innovative sectors, the 2012 Economic Action plan offers very little in new support.

Here is an overview summary of what budget 2012 has for small businesses in Canada.

Re-architecting innovation & cuts to the SRED program

In budget 2012 the government announced its plan to shift resources from indirect support (the basis of the current program) to $1.1 billion in direct forms of support over five years, several of which are mentioned below.

By January 1, 2014 it will eliminate the ability to claim capital expenses as part of an SRED claim and will cut the general tax credit rate by 5 per cent to 15 per cent.

The formula used to calculate overhead rates will also be reduced from the current 65 per cent to 55 per cent of direct labour costs, with the 55 per cent rate being fully phased in by January 1, 2014.

Also, as of January 1, 2013 businesses will only be able to claim 80 per cent of contract payments used for the purpose of calculating SRED tax credits.

Government directed funding to receive innovation spending dollars

The National Research Council (NRC) is going to see additional funds as a result of budget 2012.

An investment of $110 million per year by the federal government will double the current support for the Industrial Research Assistance Program (IRAP)  and the NRC will also receive $67 million invested in 2012–13 to help them refocus on "business-led, industry-relevant research".

The Canadian Innovation Commercialization Program, a pilot program that saw the federal government purchase Canadian innovations that had not yet been commercialized, will become permanent and will also have a military procurement element added. Starting in 2013-2014 the government will spend $95 million over three years, and $40 million per year thereafter, on this program.

Additional business financing support

If you are an innovative, high-growth company then budget 2012 may have additional funds to support your business financing.

Citing how companies like Google and Facebook were supported in early stages by venture capital funding, the government announced that it will spend $400 million to help increase private sector investments in early-stage risk capital.

It will also provide $100 million to the Business Development Bank of Canada to support its venture capital activities and will support the creation of large-scale venture capital funds led by the private sector.

Support for jobs, hiring

The government will extend the temporary Hiring Credit for Small Business for one year with an investment of $205 million. This credit, valued at up to $1000, was available in 2011 to employers whose total Employment Insurance premiums were at or below $10,000 and whose Employment Insurance premiums had increased over the 2010 amounts.

The government will also provide an additional $50 million over two years to the Youth Employment Strategy to assist more young people in gaining tangible skills and experience. This includes support for Summer Company, a program that provides financial support to students who start a business while still in school.

The Industrial Research and Development Internship program had provided $3.5 million over two years to link science and business graduates with businesses. Budget 2012 will invest $14 million over two years to double the program.

The government also signaled that it will support changes that will help foreign workers utilize their skills in Canada, both through improvements to foreign credential recognition and by working with provinces and territories to identify the next set of target occupations, beyond 2012, to integrate immigrants and other internationally-trained workers in the Canadian labour market.

Finally, the government will improve labour market opportunities for Canadians with disabilities by investing $30 million over three years in the Opportunities Fund.

Taxes and red tape

The government has said it will reduce red tape through the “One-for-One” rule and reduce the tax compliance burden for businesses.

It will also limit EI premium rate increases to 5 cents each year until the EI Operating Account is balanced.

To learn more about how the federal budget 2012 will impact the SRED tax credit program, be sure to read Re-architecting Canadian innovation: Budget 2012 cuts into SRED, Canada's largest tax program.

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