A federal minister says a full review is overdue as small business relief climbs the list
Ottawa plans to tackle long-delayed reform of Canada's tax code gradually, with relief for small businesses ranking high on the priority list heading into the federal government's second budget under Prime Minister Mark Carney.
Wayne Long, MP for Saint John-Kennebecasis and secretary of state for the Canada Revenue Agency and financial institutions, told The Canadian Press the government intends to take on the tax code "one bite at a time."
Long framed the coming fall budget as "chapter two" in the Liberals' effort to draw investment and set up the economy for growth after the shock of the US tariff campaign.
"When you say the word tax code to people, everybody rolls their eyes," Long said, adding that a full review of the code is needed.
Long said the Liberals have heard from an unnamed "major international player" willing to put more money into Canada, but not until Ottawa revises its tax code and how it governs investments.
"We need to be super aggressive. We need to bring down barriers so that major international players can look at us and say it is more than worth investing in Canada," he told The Canadian Press.
The Liberals have made several tax changes since Carney took office.
On the corporate side, the government bundled a set of accelerated writeoffs into a "productivity super-deduction" that lets businesses immediately expense new equipment and buildings, a package the government says lowers Canada's marginal effective tax rate (METR) to 13.2 percent from 15.6 percent, the lowest in the G7, as part of a plan to enable $1tn in investment over five years.
On the personal side, Ottawa cut its lowest income tax bracket by one percentage point and has a pilot for automatic tax filing starting next year.
Conservative finance critic Michael Chong said the Liberals have tinkered at the edges without taking on serious reform.
It has been about four decades since Canada last overhauled its tax system, changes made in the 1980s under Prime Minister Brian Mulroney that produced the goods and services tax (GST).
Decades of weak business investment and productivity trace back to an "arcane tax system" that pushes capital out of the country, Chong told The Canadian Press, and he called for a task force to recommend ways to modernize the code.
The data give the argument weight.
Business investment per worker in Canada sits well below peer economies, and productivity grew just 0.3 percent a year over the past decade, according to the federal government's own budget figures.
The Organisation for Economic Co-operation and Development (OECD) found in its 2025 survey of Canada that the gap is concentrated at the firm level and tied to falling rates of new-firm entry.
The CD Howe Institute estimated that in 2025 Canadian workers would receive about 70 cents of new capital for every dollar going to workers across the OECD, and 55 cents for every dollar going to US workers.
Statistics Canada research put the decline in business investment per worker at roughly 20 percent between 2006 and 2021, attributing nearly a third of the drop to fewer new firms entering the market.
Dan Kelly, president of the Canadian Federation of Independent Business (CFIB), said he has been encouraged by signals that the government is serious about what he calls an "entrepreneurial drought," though entrepreneurs will judge Ottawa by what lands in the budget.
Kelly criticized the previous government's scattershot use of specialized programs and tax breaks, and said the complexity of the corporate system raises compliance costs and leaves some owners fearing audits and penalties.
More businesses have closed than opened in Canada for six consecutive quarters, the CFIB reported, with the exit rate peaking at 5.6 percent in the second quarter of 2025 and the new-business entry rate falling to 4.8 percent by the fourth quarter, among the weakest readings outside the pandemic.
More than half of small business owners, 55 percent, would not recommend starting a business in the current environment, the group found.
The tax experts who spoke with The Canadian Press agreed that removing complexity would also mean ending boutique credits aimed at specific industries or voting blocs, a politically fraught step.
Ryan Minor, director of tax at CPA Canada, offered the example of scrapping the small business deduction, which spares firms tax on their first $500,000 in earnings.
Ending it would simplify administration across all businesses and could be offset with more generous investment writeoffs, he told The Canadian Press.
"Any time somebody is losing, they're not going to be too happy with you unless you give them something else," Minor said.
Kelly does not support eliminating the deduction, and would instead raise the income threshold for the lower rate to $700,000 to support small firms for longer, he told The Canadian Press.
Both Chong and Kelly argue that lowering rates would spur growth in existing businesses and attract new ones, potentially offsetting any drop in government revenue.
Long acknowledged that reform will require striking a political and economic balance, and said the government's thin majority gives it a stronger hand than it held in the last budget season.
Champagne's office declined to speculate on specific changes; spokesperson John Fragos said it would be "inappropriate" to get ahead of the budget, while pointing to the minister's emphasis on innovation, growth, and Canadian entrepreneurship.
