Ontario, once the financial capital of Canada, is faltering.
Alberta, until now the tax friendliest environment in Canada, is being surpassed. Look out Canada, here comes Manitoba.
In the latest federal budget, the small business deduction (SBD) limit for Canadian-controlled private corporations (CCPCs), which are taxed federally at the historically paltry rate of 11 percent, was increased to $500,000 from $400,000 effective Jan. 1.
This amounts to savings of up to $8,000 in federal income taxes.
When you add the provincial portion of the small business tax rate – 5.5 percent in Ontario, for example,the total tax rate comes in at 16.5 percent on active business income, compared to a 33 percent rate for business in general.
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The Ontario government announced in its 2009 budget that it will cut the small business tax rate to 4.5 percent from 5.5 percent July 1, 2010.
Manitoba, however, has announced in its 2009 budget that, effective Dec. 1, 2010, it will eliminate the provincial small business tax rate on the first $400,000 of active business income from the current one percent.
The accompanying graphic shows the combined CCPC tax rate in selected provinces on the first $400,000 and $500,000 of small business income as of April 1, 2009. It is expected that most provinces that haven’t already done so will eventually increase their SBD limit to cover the new federal limit of $500,000. Alberta’s limit was to increase to $500,000 from $460,000 April 1.
After 2008, CCPCs that have taxable income of less than $500,000 also receive an additional month in which to pay income tax owing at the end of their tax year. They now have three months to pay off the balance owing, compared to two months for other corporations.
They may also be eligible to pay their tax bills quarterly rather than monthly.
Some businesses are also receiving a break on their capital cost allowance (CCA), which is the rate at which they can write off their equipment and machinery for income tax purposes.
The 2007 federal budget introduced a CCA rate of 50 percent (straight line) on eligible equipment and machinery that is used primarily in Canada for manufacturing and processing and that was acquired before 2009.
The provision allows businesses to write off 100 percent of new machinery costs over two years.
The 2009 budget extended the program to include 2010 and 2011.
The 2007 federal budget also included a CCA rate on computers acquired after March 18, 2007, of 55 percent on the declining balance of the equipment.
The 2009 budget introduced a temporary 100 percent CCA rate not subject to the half-year rule on such equipment acquired after Jan. 27, 2009, and before February 2011. This means that a business will be able to deduct the full cost of eligible computer equipment and system software in the year it is purchased.
These are the friendliest tax policies applied to business in years.
Larry Roche is a tax analyst with farm taxation and planning specialists Farm Business Consultants Inc. He can be contacted at fbc@fbc.ca or call 800-860-7011.
