Leaders ask governments to ease up on smaller Canadian companies

In a poll taken by COMPAS Inc., Canadian CEOs say the government should change its regulations and tax policies on small businesses.

After the C.D. Howe Institute issued a report calling for making taxes and regulations lighter for small businesses, CEOs polled largely agreed so that small business can have room to expand.
“Government by its very nature attempts to solve all problems with regulation and complexity. In today’s regulatory climate, it certainly is difficult for small companies to survive,” said one CEO polled.

The majority of those polled agreed with simplifying the laws regarding capital gains rollovers so they could be more easily reinvested in small companies. They also supported changing employment laws like maternity and sick leave. “Small businesses are not the banks,” wrote one participant in the survey.

There was some but not universal support for the government to implement a flat corporate tax rate for all businesses. Those CEOs supporting the flat rate argued that small businesses lack the resources and staff to keep current with the regulations and cannot afford the time investment away from their main businesses as much as large companies might be able to.

There was also a difference of opinion among the CEOs polled regarding the federal small business deduction, as to whether lowering taxes on a company's first $400,000 of income discourages reinvestment as they would rather bonus out on that money. One respondent felt their business' growth was not stunted by the ceiling. “The issue is more one of the tax rate on capital gains versus the tax rate on personal income,” he replied.

All in all the respondents to the survey turned out to have a generally negative attitude toward government regulations and higher taxes. They would like governments to recognize that without the money they bring in from their businesses the governments would be crushed financially. As one respondent put it, “Governments do not create wealth. They use it up.”

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Canada to Attract More Business with Lower Corporate Taxes

A few days ago Tim Hortons Inc. announced that it was changing its corporate registration from the United States to Canada in order to take advantage of better tax rates in Canada.
Economist Douglas Porter of Bank of Montreal saw this step as confirming the Canadian government's decision to lower corporate income tax. As he notes, reductions in tax rates invite more businesses to base themselves in Canada and pay taxes here instead of somewhere more costly.

Porter believes that Tim Hortons decision will start a trend for businesses to switch their registration to Canada. As the United States is running into huge fiscal deficits, the tax rates are expected to continue to hike there. But the Canadian public sector's better position should allow tax rates to keep decreasing in relation to U.S. Taxes.

As far as we see, they are. The Federal corporate tax rate in Canada is now 19%, down from 22.1% in 2007. The rate is forecasted to keep falling, to 18% in 2010, 16.5% in 2011 and 15 per cent in 2012. The provinces are seeing parallel cuts too. The Ontario government plans to lower its general corporate income tax rate from 14% to 10% by 2013.

As these trends continue, the economy should be looking forward to more jobs and capital as well as higher revenues for government programs. And the lower rates will likely be offset by more stimulus for investment and production and more tax money pumped into the economy by more businesses being attracted to open up shop in Canada.

Maybe Canada is figuring out at long last that higher tax rates don’t always translate to high tax revenue. A classic case is tobacco taxes, where tax rate hikes often lead to greater black-market activity, smuggling and lower tax receipts. According to a Montreal Economic Institute study, in Quebec receipts from tobacco taxes went down more than 25% from 2002 to 2007,
Canadians would do well to rein in the stimulus packages that the federal and provincial governments have announced in response to the global economic recession. Without all that spending, Canadian taxes would be more likely to keep on their downward trend versus other countries and be able to generate some real growth by encouraging more businesses to operate here.

When countries like the U.S. and China administer massive stimulus packages to their economies, their effects will soon run off into Canada. And we even see it happening now. As China stockpiles raw materials, commodity prices are on the upswing. As the U.S. economy shows some recovery, it too should start bidding on natural resources and other exports from Canada.

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Canada's Economic Recovery Expected to be Modest, More Job Losses to Come: Flaherty

Canadian Corporate Tax Rates Slide to 25% Floor

Canadian Finance Minister Jim Flaherty says unemployment will rise through 2010 despite some growth in the economy after meeting with the finance ministers of other nations.
Even though the economy is in the process of stabilizing, he and his fellow colleagues expect a continued increase in unemployment, as the labour markets have not improved and they are concerned about the effect on workers.

"We'll start to see stabilization, which we are seeing now, and then a return to economic growth but continuing deterioration in employment," he said.

"We can expect that to happen into 2010, but we're optimistic we will then see the unemployment numbers start to improve."

U.S. payrolls fell in June by 467,000, far more than was expected. Growth was predicted to resume by the fourth quarter but now some think that it may not happen so quickly.

Canadian economists expect Statistics Canada to report another 30,000 jobs to have been lost in June 363,000 jobs have been lost in Canada since October 2008.

Flaherty has in the past warned Canadians that times may continue to be tough however he is also confident that our recovery would be swift and strong, leading most of the industrialized countries.

Recently he has been more conservative in his estimates though, concurring with other finance ministers that recovery will be slow.

"The anticipation is that the recovery will be modest, so that we'll experience some continuing increase in unemployment, but as we move into 2010, we'll start to see modest recovery," he said.

In the January budget, Flaherty predicted a strong rebound from the recession, with GDP growth of 4.3 per cent in 2010, 6.4 per cent in 2011 and 6.1 per cent in 2012, all higher than the private sector's average estimates.

Notably, the finance minister said he believed Canada's low corporate tax regime in comparison to other nations will attract corporations here.

Tim Hortons Inc. (TSX:THI) announced this week that it would relocate its corporate registration back to Canada from the U.S. in order to take advantage of lower taxes. Flaherty thinks other companies will follow suit as Canada's corporate tax rates decrease to the new 25 per cent floor in combined federal and provincial taxes.


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Why Should I Incorporate My Business in Canada? – Part II: The Advantages

So you are thinking about incorporating. Here are some more advantages as well as potential pitfalls of incorporating:

Limited Liability

As we said in the previous post, a corporation is a separate legal entity from its owners, and the main advantage of that is that the owners, or shareholders are for the most part not liable for the corporations debts and obligations. They can only lose the amount they invested in the corporation. The creditors can only have claims against the corporation itself and not the shareholders.

Perpetual Existence

Being a separate legal entity, a corporation does not cease to exist if the shareholders, directors, officers or members die or retire. The ownership of the corporation and it shares can therefore be easily transferred. The corporation itself may also own property, enter into contracts and sue or be sued, independent of any individual involved.

More Potential Sources of Capital, More Attractive to Investors

Corporations can issue different classes of shares as well as different debt instruments, such as bonds, in order to raise capital. Sole proprietorships and partnerships cannot do so as easily. This makes it easier for corporations to attract investors as opposed to the other business forms.

Tax Benefits

Among other tax benefits, incorporating would cause your business to pay income tax at a lower rate than as a sole proprietorship or partnership. It would also be possible to carry forth losses of previous years that offset the profits of subsequent years.

Credibility and Prestige

Incorporating can very well lend greater credibility and prestige to your business dealings that you would not have otherwise. You might be seen as a more established company as opposed to before you incorporated.

Now that we have discussed some of the advantages, here are some formalities you should be aware that you would be subjected to upon incorporating:

Higher Start-up Costs

The cost to incorporate, including government fees, may be higher than those to initiate a sole proprietorship or partnership.

Maintaining Records

In order to provide shareholders with information, a corporation must keep meticulous records, as well as hold meetings and elect directors.

Double Taxation

This may seem like a disadvantage, however it can be minimized. The corporation pays taxes on its income and the shareholders pay taxes on their dividends (profits). But the corporation's business expenses, such as salaries, can be offset by its income.


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Why should I incorporate my business in Canada? - Part I

You're a Sole Proprietor

You're a small business owner, or thinking of starting a small business. As a sole proprietor, you make all the decisions and earn all the profits, but you also bear all the risks and obligations. Start-up is easy and inexpensive, and dissolving the business would be too, should the need arise. But the big disadvantage of continuing this way is unlimited liability. As the owner, you are liable to the full extent of your personal assets for any liabilities, debts and losses that your business incurs.

Register your sole proprietorship in Canada

You're a Partnership

Maybe you have a partner in your small business; so there are at least two people to share in all the profits and/or losses. Just like a sole proprietorship, a partnership is easy to form and dissolve and not so formal in general to operate. Again, though the great drawback to a partnership is unlimited personal liability for all the partners for any debt or loss incurred by any other partner in the business; regardless of each individual's capital contribution.

Register your partnership in Canada

You're Thinking About Incorporating in Canada?

As a corporation, however, your company would be a separate legal entity from its owners, or shareholders. The shareholders control the corporation because they have voting rights. The extent of those rights depends on how many shares each one holds. The shareholders elect and remove directors and approve major corporate decisions. But the company is run by directors and officers, who may or may not also be shareholders. To incorporate, a company must file the Articles of Incorporation (also called a Charter or Certificate of Incorporation) with the government.

Incorporate your business in Canada

Stay tuned for future posts about selecting a corporation name, trademarking, and more info on incorporating your company.


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