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Scrapping Nova Scotia Tax Break Would Blunt Province's Edge

Wednesday, November 26, 2014

The Canadian Federation of Independent Business (CFIB) has said that it is deeply concerned about proposals to hike Nova Scotia's small business tax rate from three percent to eight percent.

The proposal is made in the final report of the Nova Scotia Tax and Regulation Review. The review looked at the impact of taxes, fees, and regulations, and considered what changes would improve Nova Scotia's economic and business climate.

The report made 22 tax-related recommendations and a further 20 for regulations, fees, and related areas.

At three percent, Nova Scotia's small business tax rate is one of the lowest among Canadian provinces. The cost of this has ranged from CAD128m (USD113.5m) to almost CAD200m since 2008, and the New Small Business Tax Holiday, which does not exist in other provinces, eliminates income tax for the first three years.

According to the report, "Small business tax breaks create an incentive for business to stay small, and do not recognize the reality that large corporations drive economic and job growth." It recommends that the small business tax rate be increased over the next ten years, to eight percent, and that the small business tax threshold rise from CAD350,000 to CAD500,000.

The report suggests that the removal of the small business tax rate could fund a cut to the headline corporate tax rate from 16 percent to 13.5 percent. The "underused and ineffective" New Small Business Tax Holiday should be scrapped, and the scope and duration of all business tax credits limited, it said.

Jordi Morgan, Vice President, Atlantic, for CFIB, said: "Cutting taxes for big businesses at the expense of smaller ones doesn't make much economic sense. Most Nova Scotia businesses are small and they employ more than half of private sector workers in the province. That's a huge segment of the economy to disadvantage."

Morgan also contrasted the report's recommendation with recent developments in New Brunswick. "The new Liberal Government's first act upon taking office was to reduce their small business rate," she pointed out. From January 1, 2015, the lower rate of New Brunswick corporate tax will fall from 4.5 percent to 4 percent. The New Brunswick small business investor tax credit has also been enhanced, effective for the 2014 tax year, to enable corporations and trusts to claim a 15 percent non-refundable corporate income tax credit.

Elsewhere in Canada, the Newfoundland and Labrador small business corporate tax rate was reduced from four percent to three percent, effective July 1, 2014. British Columbia recently extended its scientific research and experimental development (SR&ED) tax credit and improved its film and television tax credit, while Manitoba extended creative industry tax credits that were set to expire at the end of this year.