A newly announced tax cut will help reduce the burden for small business owners, but they still need more support, according to the Ontario Chamber of Commerce (OCC).
In a statement responding to the Fall Economic Outlook and Fiscal Review released by the newly instated Progressive Conservative government of Ontario, the OCC offered its thoughts on certain key policy declarations.
“We are encouraged to see the Government of Ontario taking reasonable steps towards enhancing Ontario’s competitiveness and further economic development across the province with attention towards fiscal accountability and key investments of $1.3 billion in critical services,” the OCC said.
Among the points it focused on was a reduction in the small business corporate income tax from 3.2% to 3.5%, which is set to kick in on January 1, 2020. The announced cut fulfills a promise that Premier Doug Ford made during the 2018 provincial election campaign.
In its announcement Wednesday, the Ontario government said its delivering on the campaign vow will cost the treasury $185 million over three years, according to the Financial Post. The net benefit, meanwhile, would be reduced tax costs of up to $1,500 for more than 275,000 businesses.
While acknowledging it as a good step forward, the OCC maintained that small business owners still need more support.
“[The reduction] will help reduce the burden for small businesses earning up to $500,000, but unfortunately does not address the scale up challenge which many small businesses confront,” the OCC said in its statement.
One significant taxation challenge to entrepreneurs is the drastic increase in corporate income tax faced by businesses once they exceed $500,000 mark in income. Currently in Ontario, business owners who cross that line see their corporate income tax rate go from 3.5% to 11.5%.
In addition, the federal limit of $500,000 for small businesses to claim a reduced corporate income tax rate starts to decrease once a business amasses $10 million in taxable capital; once that number reaches $15 million, the small business limit is totally eliminated.
To address the scale-up barrier represented by the increased tax rates for small businesses that cross the income threshold, the OCC recommended that the existing flat rate be replaced with a variable small business deduction rate for small businesses with an annual income above $500,000.
“Small businesses are the backbone of our economy and a variable tax rate that increases gradually as revenue grows would help businesses scale and grow,” the group said. “We also look forward to working with government on its Small Business Success Strategy.”
Follow WP on Facebook, LinkedIn and Twitter
More market talk: