A week ahead of the release of the second budget under Prime Minister Mark Carney, expectations are mounting that Ottawa will announce targeted new tax incentives aimed at supporting entrepreneurs and small businesses.
While many economists and business groups have called for a major overhaul of Canada’s tax system as a way of boosting growth and investment, the signals from Ottawa suggest narrowly focused tax breaks are more likely to be unveiled in the Nov. 5 budget.
Scotiabank economist Rebekah Young, a former Finance Department official, released a detailed report Thursday outlining the bank’s expectations for the budget.
“They may move on some tax incentives, but more targeted for entrepreneurs,” she said in an interview.
Ms. Young said the government could announce a process for a broader tax review, such as reassessing the various breaks known as tax expenditures, but she doesn’t expect Ottawa will be in a position to make immediate, broad-based tax changes in areas like rates on consumption, personal or corporate taxes.
“I don’t think they’ve done the homework for big-bang tax reform yet,” she said.
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Many of the budget’s big-ticket items have already been announced in recent weeks, including $36-billion over five years to fund a Productivity Mega Deduction. That measure expands the ability to immediately write off investments in eligible capital assets.
In her report, Ms. Young said the bank expects further tax measures on budget day on in the lead-up. These could include capital-gains incentives for Canadian startups and tax changes aimed at retaining Canadian entrepreneurs.
Such moves would be in line with recent recommendations put forward by more than 100 business leaders organized by the Council of Canadian Innovators and the Canadian Venture Capital and Private Equity Association (CVCA), called Bet on Canada.
The campaign called for a revived version of a Canadian Entrepreneurs’ Incentive, which was proposed in the 2024 budget but not adopted. It would offer lower capital-gains tax rates for startup founders.
The campaign also called for a change that would allow entrepreneurs and investors to defer capital gains on proceeds from selling a stake in a startup when that money is reinvested in another Canadian startup.
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CVCA chief executive officer Benjamin Bergin said in interview that the government appears to be interested in both recommendations.
“We’re cautiously optimistic that we’ll see it in the budget next week, and that it’ll be a great opportunity for making Canada more competitive,” he said.
Finance Minister François-Philippe Champagne released an image Thursday of his next budget’s cover page, which features a photo of hydroelectric transmission lines cutting through a forested wilderness with the Churchill River in the background.
The budget’s English title is Masters of Our Destiny, a translation of the French phrase Maîtres chez nous.
The government committed earlier this year to double Canada’s electricity generation. In August, Ottawa, Newfoundland and Labrador and Quebec’s previous government announced more than $50-billion in hydro, wind and transmission projects primarily related to Churchill Falls.
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While then-Quebec premier Christine Fréchette said at the time that her political rival, Parti Québécois Leader Paul St-Pierre Plamondon would rip up the deal, Mr. Plamondon said in September that it seemed to be a good agreement. The PQ now leads a minority government after Quebec’s Oct. 5 election.
Dan Kelly, president of the Canadian Federation of Independent Business, said in an interview that his members would welcome targeted incentives for entrepreneurs that support reinvesting in Canada.
However, the CFIB’s main and long-standing recommendation has been a call for Ottawa to reduce the small-business tax rate to six per cent from 9 per cent and to increase the small-business-deduction threshold to at least $700,000, from the current $500,000.
Mr. Kelly said increasing the threshold by that amount would simply account for inflation since it was raised to $500,000 from $400,000 in the 2009 budget.
“The minister has been signalling for some time that the budget will be focused on entrepreneurship and small business,” he said. “Obviously, running Canada’s largest small-business organization, that’s welcome news from our perspective.”
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But Mr. Kelly said the small-business community has been “burned” before with big-ticket budget announcements that sound good at first but ultimately involve bureaucratic new programs that are too complicated for businesses to access.
“What government thinks is going to be helpful to small business, and what small businesses think is helpful, are often very, very different,” he said.
Some economists and think tanks, including the C.D. Howe Institute, have proposed eliminating the small-business tax deduction as part of comprehensive tax changes to boost growth and reduce complexity.
Mr. Kelly said the lower tax rate for small business is good policy and he’s not convinced of the need for a major study.
“I would take the immediate tax reductions and a few examples where we can simplify, rather than another giant review that sits on some desk in Ottawa for the next decade,” he said.