BUDGET. SMEs eligible for the Small Business Deduction (SBD) will get a further reduction in their tax rate on their first $ 500,000 of taxable income.
The tax on this income bracket drops from 4% to 3.2% to reach the same level as Ontario. The tax paid would thus drop from $ 20,000 to $ 16,000 on the first $ 500,000 of taxable income, a tax saving of $ 4,000.
Quebec anticipates that 70,000 SMEs will benefit from this measure, the annual cost of which is estimated at $ 70 million ($ M). However, over five years, the bar should deprive the State of revenues estimated at $ 347 million.
However, the criteria for entitlement to the ECD have been the subject of criticism from entrepreneurs and the organizations that represent them. For example, companies in the service and construction sector usually are required to pay their employees a minimum of 5,500 paid hours to be fully eligible for this benefit.
However, the Canadian Federation of Independent Business (CFIB) issued a warning ahead of the budget’s release to point out that between 3,705 and 9,375 businesses could lose this advantage due to the slowdown in their operations during the pandemic. They would then be taxed at the significant business tax rate of 11.5%.
The Legault government had already announced a “one-off” adjustment to the calculation of paid hours about the DPE to consider the mandatory closure of certain businesses due to COVID-19 from March 15, 2020, to June 29, 2020.
Quebec is now announcing that businesses that took advantage of the SBD in the previous tax year will be able to ask Revenu Quebec to apply it again, even if the 5,500-hour criterion is not met. The measure applies for a fiscal year that ends after June 30 and before July 1, 2021.
Beyond the relaxations, the CFIB is critical of the DPE. François Vincent, his vice-president for Quebec, had pleaded for abolishing the restriction on paid hours in an interview with Les Affaires in January. “All businesses in Quebec should have the same access to the reduced corporate tax rate, as is the case in other Canadian provinces.”
The DPE was adopted in 2015 by the liberal government of Philippe Couillard for the year 2017. The intention was to encourage job creation in small businesses while preventing this measure from incorporating professionals as a strategy. Fiscal. In 2015, the DPE rate planned for 2017 was 8%. It will now be 3.2% following Thursday’s announcement.
Now that the budget is published, François Vincent says he will continue to push to remove restrictions. He insisted, however, that the budget contained “good news”. “It shows the confidence the government places in SMEs to revive the economy. ”
Debt repayment, hiring, salary increases and the acquisition of machinery are the main actions that SME owners would consider with a reduction in their tax burden, underlines François Vincent, who quotes a survey conducted by the CFIB in January latest. Only 5% of respondents said they would use a lower tax burden to increase their dividends.