Perry Yuen is an associate partner in EY Canada’s Private Client Services practice.
The federal budget tabled by Finance Minister Bill Morneau focuses on the country’s finances while setting the stage for the impending fall election.
It’s targeted largely towards middle-class voters, with a particular spotlight on baby boomers and millennials – including exemptions aimed at helping low-income working seniors and a modernized home buyer plan for first-time buyers, for instance – rather than providing a clearly defined set of initiatives for small- to mid-sized Canadian businesses.
With that said, skills and training are a notable budget theme for 2019, with some potentially significant benefits to Canadian businesses, in particular startups and companies in the process of scaling up. Here are some of the key takeaways.
Canada Training Credit
Budget 2019 introduces measures to address the barriers to professional development for working Canadians, helping them to upskill in a rapidly evolving, increasingly digital-first workplace at a price tag of $1.7 billion over five years. The newly introduced Canada Training Credit provides assistance to small business owners, entrepreneurs and employees looking to increase skills in their chosen fields.
A refundable tax credit will be available, with claims beginning in late 2020, to help eligible Canadian individuals (aged between 25 to 64 years old) accumulate $250 per year (up to a maximum accumulation of $5,000 over a lifetime) to cover some of the costs of training to learn new job skills at eligible post-secondary institutions.
Canadians must also file a tax return to qualify, earn work wages in excess of $10,000 and have a net income that does not exceed the top of the third tax bracket ($147,667 for 2019). The amount of the refundable credit that can be claimed in a taxation year will be equal to the lesser of one-half of the eligible tuition and fees paid in respect of the year and the individual’s notional account balance. The refundable Canada Training Credit will reduce the amount that will qualify as an eligible expense for the tuition tax credit.
Moreover, a newly introduced EI training benefit aims to provide income support for up to four weeks of paid leave every four years for individuals who take time off work to attend a training program (at 55% of earnings). As an added incentive for small business owners, it’s anticipated they’ll earn a small tax break on their EI premiums, although that has yet to be formalized since EI rates will be set later in the year.
Scientific research incentives for growing Canadian private companies
Prior to the new budget announcement, Canadian-controlled private corporations (CCPCs) could access the enhanced Scientific Research and Experimental Development tax credit rate of 35% for expenditures up to $3 million every year.
Budget 2019 aims to better support small- and mid-sized businesses as they mature and scale up by eliminating the use of taxable income in the previous taxation year. Previously both taxable income and taxable capital of the associated group, whichever was higher, were used before Tuesday’s budget announcement when determining a CCPC’s annual expenditure limit and ability to access the refundable 35% tax credit rate.
Small business deduction for farming and fishing incomes
While much attention was paid in recent years to startups focused on using technology to disrupt existing industries, Budget 2019 also proposes to provide more relief for farming and fishing businesses. It plans to do this by counteracting measures introduced in 2016 which prevented CCPC’s “specified corporate income” from being eligible for a small business deduction. The exception will now be retroactively expanded to include a CCPC’s income from sales of farming products or fishing catches of its business to any arm’s-length purchaser corporation. This was previously only available for sales to co-operative corporations.
Canada-wide high-speed internet access by 2030
Another promise by the Trudeau government is 100% access to high-speed internet across Canada by the year 2030. While more of a long-term goal with total investment of $1.7 billion, this could have a positive impact on small businesses operating in rural areas of the country, could unlock new opportunities in the e-commerce sector and allow businesses to access previously untapped customers and markets.
Corporate rates and stock option deduction for small and growing businesses goes unchanged
Also of note: no changes were proposed to the corporate income tax rates or to the $500,000 small business income limit of a CCPC. Meanwhile, Budget 2019 seeks to limit the availability of the stock option deduction for “large, long-established, mature firms” to an annual maximum of $200,000 of stock option grants (based on the fair market value of the underlying shares on the date of the grant), while the stock option deduction will remain unchanged for startups and small businesses.
The Globe and Mail Small Business Summit will give you practical ideas to grow your business. This year’s speakers include former Dragon’s Den star David Chilton, Kate Ross Leblanc from Saje Natural Wellness and celebrity chef Mark McEwan.