Grant Thornton LLP Analyzes 2022 Federal Budget
BRITISH COLUMBIA – Small business deductions introduced in the 2022 Federal Budget means good news in terms of a reduced corporate tax rate, says Grant Thornton LLP’s National Tax Leader.
“Under the current rules, the $500,000 small business deduction business limit is reduced when a business has taxable capital between $10 million and $15 million and the small business deduction is not available if the taxable capital is over $15 million,” states Tara Benham of Grant Thornton LLP states concerning Canadian-controlled private corporations. “The government has recognized that many businesses require capital in excess of these amounts and is amending the rules to reflect this.”
Benham notes that Budget 2022 proposes to extend the upper limit of taxable capital at which the small business deduction is fully ground down from $15 million to $50 million.
“Under this expanded range, more medium-sized businesses can benefit from the reduced corporate tax rates through small business deduction which also encourages small businesses to grow,” she adds. “In addition, the government is working on creating a new Employee Ownership Trust classification within the tax system to promote employee ownership and succession of small businesses.”
Benham observes that the budget proposes several measures designed to help stabilize the housing market including tax relief for first-time home buyers. They include a new Tax-free First Home Savings Account, expanded Home Buyer’s Tax Credit, a new residential property anti-flipping rule, a two-year ban on non-resident home purchases and the application of GST/HST on all assignment sales of certain residential units.
“From a business perspective, the government proposes to introduce several incentives for businesses to adopt and invest in green technologies including the air-source heat pumps accelerated tax write-offs and a new refundable tax credit for carbon capture, utilization, and storage,” says Benham. “In addition, the government proposes to allow more medium-sized businesses to benefit from the small business deduction.”
There are some concerns, especially with some businesses continuing to struggle in recovering from the impact of the Covid-19 pandemic.
“Both the Tourism Hospitality Recovery Program and the Hardest-Hit Business Recovery Program are scheduled to end on May 7, 2022. Some business groups have advocated for continued pandemic-related stimulus, but we did not see additional pandemic stimulus measures in this budget,” she says.
An additional concern could be centered around the theme of ‘taxing the wealthy’. Examples include proposed measures such as the one time 15 per cent Canada Recovery Dividend and the 1.5 per cent corporate tax rate increase which is being levied only on banks and life insurers, the new Substantive Canadian-Controlled Private Corporation rules, and a proposed review of the Alternative Minimum Tax regime all indicate that this is an area of interest.
Generally speaking, Canadians and politicians seem to be unconcerned about government debt loads.
“Canada’s economic recovery has certainly helped keep the debt loads in check. Canada has the lowest net debt-to-GDP ratio in the G7 countries, and the current 46.5 per cent debt ratio is lower than what was projected in previous budget,” she says. “We see in this budget that the government is winding down pandemic stimulus spending and proposes to implement measures, such as the Canada Recovery Dividend (one-time 15 per cent tax on banks and life insurer groups) to reduce debts.
“However, it still has a long way to go (until the late 2030s based on Budget 2022 projections) to reduce the debt ratio to its pre-pandemic level of approximately 30 per cent.”
There are also concerns about inflation.
“More spending certainly does need to be taken into account when we are dealing with the highest inflation that we have seen in 30 years,” Benham observes. “The government recognizes the growing inflationary pressures caused by skyrocketing commodity prices and supply chain disruptions. To try and mitigate this, Budget 2022 proposes several measures to expand Canada’s economic supply capacity.
“Their proposals include boosting immigration, improving workforce re-training programs, providing funding to attract investment to restructure supply chains, and providing tax relief to support critical mineral exploration. However, uncertainty remains against the backdrop of the war in Ukraine and the COVID-19 resurgence in other parts of the world.”