Some time ago, we looked at some highlights from Ontario’s Budget and discussed how it might affect small Canadian businesses. This time, we will look at some important highlights from the Federal Budget (2012), which is also known as the Economic Action Plan.

Income Tax Rates:

No proposed changes were made to the corporate income tax rates. The corporate income tax rate for 2012 remains to be at 15% and the small business corporate income tax rate is 11%.[1]

Employees Profit Sharing Plan (EPSP):

This is otherwise known as the Employer Profit Sharing Plan. Just in case you are new to this, an EPSP allows the allocation of profits of an employer to employees, including shareholders and family members who are employed in a corporation. Under an EPSP, the employer may pick and choose which employees will benefit in the plan. Put it simply, an EPSP can potentially allow a business owner to split income, decrease payroll costs such as EI and CPP payments, and reduce or defer income taxes.[2]

If you wish to learn more about the EPSP, I suggest visiting the following link:

http://www.cabusinessadvisor.com/Tax/TaxPlan/Corp/ProfitS.htm

According to the Federal Budget, a special tax may apply on excess EPSP contributions payable by employees who own 10% or more of the corporation.[3]

Eligible Dividends:

Canadian corporations paying taxable dividends can make one payment and designate them as “eligible” and “ineligible” instead of making separate payments for each.[4]

Hiring Credit for Small Businesses (HCSB):

The HCSB is a credit intended to stimulate new employment and support small businesses. It gives small businesses relief from the employer’s share of employment insurance (EI) premiums paid in a year. It does this by crediting up to $1,000 on the payroll account, based on the increase in an employer’s EI premiums paid in one year over those paid in the year before. The HCSB was first introduced in the 2011 federal budget, and the latest federal budget proposes to extend this credit for 2012.[5]

Follow the link below to find out if you are eligible for this credit:

http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/hwpyrllwrks/stps/hrng/hcsb-2012-eng.html

SR&ED Program

Changes have been made in order to simplify the SR&ED program and make it more cost-effective. First, the general SR&ED investment tax credit rate will be reduced to 15%. Second, capital expenditures will be removed from the base of eligible expenditures for expenditures incurred in 2014 and subsequent years. All other expenditures such as salary and wages, materials, overhead expenses and contract payments remain eligible.[6]

Tax avoidance using partnerships

The Federal Budget also included a significant proposal to modify tax avoidance rules targeting sales of partnership interests. To find out more about this, follow the link below:

http://www.kpmg.com/ca/en/issuesandinsights/articlespublications/tnf/pages/tnfc1215.htm

 

If you have any questions or concerns about how the Federal Budget may affect your business, please feel free to give us a call.