Federal 'Wall of Taxation' (Views: 6378)
Tue, 31 May 2011
A recent study suggests that small business tax incentives are keeping businesses in Canada small, hindering business efficiency and disproportionately benefiting the wealthy. This study says that Canada’s small business tax rate creates a ‘wall of taxation’ in the country that keeps businesses small so they can remain in favourable tax brackets.
Presently, Canada has a deduction for small businesses that allow companies with less than $500,000 in revenue be federally taxed at a rate of 11%, as opposed to the standard corporate tax of 16.5%. Originally in place to lessen the tax burden on small businesses, Jack Mintz and Duanjie Chen of the University of Calgary counter this statement saying that this particular argument is not supported by their study.
The authors of the U of C study infer that small business tax rates have led to an abundance of small businesses in Canada that have no intention to grow. A 1997 Canadian study showed that only 12% of small businesses grew from having less than 5 employees to 5-19 employees, and only 1% grew to having 20 or more employees. One solution put forth by the study was to allow incentives for depreciable assets, which would allow all firms, regardless of size, to expense capital up to a certain limit. A similar system has been put in place in the UK.
Mr. Mintz and Ms. Chen also criticized the current capital gains tax regime which creates an exemption for investing in small businesses. The authors suggest that instead, a capital gains deferral account should be institutionalized, in which any assets that yield taxable capital gains would enable entrepreneurs and other investors to roll over assets on a deferral basis until disposed of.
Presently, Canada has a deduction for small businesses that allow companies with less than $500,000 in revenue be federally taxed at a rate of 11%, as opposed to the standard corporate tax of 16.5%. Originally in place to lessen the tax burden on small businesses, Jack Mintz and Duanjie Chen of the University of Calgary counter this statement saying that this particular argument is not supported by their study.
The authors of the U of C study infer that small business tax rates have led to an abundance of small businesses in Canada that have no intention to grow. A 1997 Canadian study showed that only 12% of small businesses grew from having less than 5 employees to 5-19 employees, and only 1% grew to having 20 or more employees. One solution put forth by the study was to allow incentives for depreciable assets, which would allow all firms, regardless of size, to expense capital up to a certain limit. A similar system has been put in place in the UK.
Mr. Mintz and Ms. Chen also criticized the current capital gains tax regime which creates an exemption for investing in small businesses. The authors suggest that instead, a capital gains deferral account should be institutionalized, in which any assets that yield taxable capital gains would enable entrepreneurs and other investors to roll over assets on a deferral basis until disposed of.
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