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Small business owners across Canada were pleasantly surprised at a 2006 federal budget tabled earlier this month that contained a large number of provisions targeted directly at them.

"It's definitely a step in the right direction," says Steven Bruder, chief financial officer of Lumenera Corp., which develops high performance digital cameras and custom imaging solutions in Ottawa.

He cites a litany of tax incentives in the 2006 document, including both reduced tax rates and increased tax credits that are expected to provide Lumenera, which has already grown from 39 to 65 employees over the past year, even greater opportunities to hire and expand in the future.

"Anything that helps lower the overall tax position of a growing company like Lumenera is advantageous because we can take those savings and reinvest them. The biggest need a self-funded company such as ours has is working capital."

Mr. Bruder is not alone in his positive outlook. Many in the business community were satisfied, even surprised, at the number of provisions that favour small business in the new federal Conservative government's inaugural budget.

"We were very pleased," says Garth Whyte, Ottawa-based executive vice-president of the Canadian Federation of Independent Business (CFIB), which has more than 105,000 members across the country. "They really went down our list of priorities and addressed them. The budget exceeded our expectations, which is unusual."

"We don't usually spend much time applauding [a federal budget], but in this case we did," said Diane Brisebois, president and chief executive officer of the Retail Council of Canada in Toronto, which represents more than 40,000 businesses from coast to coast.

Both business leaders cited, as a major example, the proposal to increase the small business corporate tax rate threshold from $300,000 to $400,000 -- the rate at which a much lower small business tax rate of 12 per cent (compared with 21 per cent) applies -- effective January 1, 2007. Having that lower rate of tax apply for an extra $100,000 reduces federal tax by $9,000; additional provincial or territorial savings could also result if those jurisdictions follow suit and increase their threshold as well.

Mr. Whyte and Ms. Brisebois also pointed to the federal government's commitment to reduce the small business tax rate to 11.5 per cent in 2008, and then 11 per cent in 2009.

Another provision that earned the federal government kudos was their decision to provide an apprentice tax credit of up to $2,000, based on 10 per cent of salaries and wages, for the first two years of employment of each new person hired in prescribed trades.

"This should give employers more of an incentive to hire apprentices as well as to increase their wages," says Myron Knodel, manager of tax and estate planning with IGM Financial Inc. (Investor's Group) in Winnipeg.

The 1-per-cent cut in the goods and services tax (GST) to 6 per cent -- which was a key plank in the Conservatives' election platform and will officially take effect July 1 -- also received a thumbs-up from the business community.

"Retailers are very aware that consumers are saying 'Enough is enough. We're paying too much tax.' And while some people have said that a 1-per-cent reduction isn't much, it does have a positive impact at the cash register," says Ms. Brisebois.

That's what Paul Simmonds, president of Robert Simmonds Inc., a clothing and footwear retailer for both men's and women's apparel in Fredericton, is anticipating will happen when the GST reduction goes into effect.

"I am very excited, in particular, about the GST reduction. Any tax reduction will help our small business [of 11 employees], because it gives people more disposable income. That will help our local economy for sure," he says.

Though reaction to the GST cut is generally enthusiastic, some businesses are worried about details in how it will work. For instance, companies will need to make changes to pre-authorized payment transactions, update cash registers, price lists and catalogues, and correct GST calculations in websites and electronic payment software.

The Retail Council has been working with the Canada Revenue Agency and Finance Canada to address those "challenges," Ms. Brisebois said, which will necessitate manual and information technology system changes to accommodate the lower GST. The supplier community and telecommunications specialists have already begun to address these technicalities, but they are much less complex than what the retail industry faced 15 years ago when the GST was first introduced, she added.

Even some of the provisions that didn't attract widespread notice drew praise. For example, notes Mr. Whyte, the 2006 federal budget doubled a business's maximum loss carry forward provision to 20 years, from the 10-year allowance that existed previously.

A small business start-up that ultimately becomes extremely successful and profitable could, he points out, encounter a major loss at some point. Thus, this extended carry-forward provision would allow that business the opportunity to reduce its taxable income in a significant way for a greatly extended period.

Provisions for fishermen were also lauded. These allow fishermen the same $500,000 lifetime capital gains deduction on the disposition of qualified property used in their business as exist for property disposed in other industries. As well, there are proposed changes to rules that will provide fishermen with similar rights as farmers when transferring property between generations.

"It seems that they've levelled the playing field in all aspects now when it comes to those two professions," says Mr. Knodel, who adds that this provision could have a significant impact in the Maritimes, the Gaspé region of Quebec, and in the coastal region of British Columbia.

Though small business reaction was positive over all, there were a few items that business advocates were looking for, but didn't get, in this budget.

For instance, notes Ms. Brisebois, the budget didn't reduce employment insurance (EI) premiums.

"The surplus in the EI account is something we have been concerned about for many years, and in our [pre-budget] submission we had talked about EI premiums." The organization will be pushing harder for a reduction in EI premiums in the next budget because of its huge impact on retail, she said.

And one of the criticisms from the previous Liberal government's budgets -- namely the decision to post-date certain corporate tax decreases -- also applied to this document. Analysts note how, for example, the small business tax deductions will only take effect in 2008 and 2009. And they worry that developments in the meantime might derail even those target dates.

"Small business is going to want the government to stick to these proposals, and not change them," Mr. Knodel says. "Sometimes you can have scheduled reductions, but then governments go back on their word when their revenues aren't what they expect."

Small business is also mindful of the fact the current Conservative government is in a minority position, and is therefore more susceptible to defeat and another date with the electorate.

"We have to remember that this is a minority budget that hasn't yet passed and must get through [Parliament]," Mr. Whyte cautions.

But, he adds optimistically, "there is an indication that small business priorities are acceptable to all parties."