A third of Canada’s SMEs say they aren’t growing, national lobby group maintains
Only seven per cent of small businesses in Canada plan to grow or diversify significantly over the next 12 months, according to some of the latest research compiled by the Canadian Federation of Independent business.
The Toronto-based SME lobby group says a third of small businesses (31 per cent) indicate they aren’t growing because of cost and economic pressures, and of those over half (59 per cent) cite the tax burden as the biggest barrier preventing their business from expanding.
‘Time to listen’
“When small business owners are telling you they’re stuck in neutral and it’s taxes that are the number one thing standing between them and growth, it’s time to listen,” said Corinne Pohlmann, the CFIB’s executive vice-president of advocacy.
“Small firms have been crystal clear that they would rather see government reduce taxes than announce programs and grants that only target a small pool of applicants,” she added. “The best way to invest in Canada’s small businesses is for government to get out of the way. Cutting the small business tax rate should be government’s number one priority in the upcoming fall budget.”
Pre-budget recommendations
CFIB is making 13 tax recommendations to the federal government for its upcoming annual budget. They include:
• Reducing the small business tax rate from 9 per cent to 6 per cent, increasing the deduction threshold from $500,000 to at least $700,000 and indexing it to inflation moving forward;
• Increasing the GST/HST threshold (unchanged since 1991) from $30,000 to at least $60,000 and indexing it to inflation moving forward;
• Exempting taxes from gains following the sale of a business (shares and assets) when the proceeds are reinvested in a Canadian CCPC within the next three years;
• Introducing a lower capital gains inclusion rate for all small firms of 33 per cent on the next $2 million of gains beyond the Lifetime Capital Gains Exemption;
• And providing the self-employed with some type of standard business deduction or refundable tax credit of up to $20,000 similar to the Qualified Business Income (QBI) Deduction recently made permanent in the U.S.
Impact of federal policies
The CFIB’s latest Fiscal Policy Survey was a special exercise designed to capture small business perspectives on government spending, taxation and fiscal policy. It explored the impact of current policies on business competitiveness and operations, while identifying key challenges and opportunities for improvement and helping to inform the CFIB’s advocacy priorities.
According to the CFIB, nearly two-thirds of survey respondents (62 per cent) said their top priority would be for Ottawa to cut the small business tax rate.
While three in five (58 per cent) of small businesses said they’d use tax savings to increase employee wages, nearly half (48 per cent) said they would pay down debt, while 47 per cent said they would expand their business.
“Every dollar Ottawa takes in small business taxes is a dollar that doesn’t go toward an employee raise, a new hire or new equipment,” said Jasmin Guénette, CFIB’s vice-president of national affairs.
Opening Canada to investment
“Entrepreneurs know where the money will do the most good, and time and time again they tell us it goes straight back into their people and their businesses,” he continued.
“The upcoming budget is an opportunity for the government to be bold and send a clear message to Main Street that Canada is the best place to start, run and grow a business. That starts with fixing our tax system so that it works for small businesses.”
The CFIB says its petition urging the federal government to cut the small business tax rate has nearly 10,000 signatures. According to a controlled-access online CFIB survey conducted between August 6 and September 3, most Canadian small businesses are focused on stability rather than expansion.
Most want to stay the course
More than half of those responding to the survey (56 per cent) intended to maintain their current course, including 31 per cent doing so because of cost pressures and economic uncertainty, and 25 per cent because their business is stable and performing as desired. About 30 per cent were planning to grow or diversify.
Other key findings
- Business owners strongly prefer broad-based competitiveness measures over targeted supports. Four in five (80 per cent) believed that fostering a competitive business environment would be a better way to promote economic growth than providing targeted support to specific sectors or industries.
- Capital gains tax changes would encourage investment and business growth. Overall, 65 per cent said a lower capital gains inclusion rate on gains exceeding the Lifetime Capital Gains Exemption (LCGE) would be a moderate or strong incentive to invest, while 59 per cent said the same about increasing the LCGE to $2 million and keeping it indexed to inflation.
The survey results were based on responses from 1,694 CFIB members who are owners of Canadian independent businesses from all sectors and regions of the country.
