Small businesses spared in federal budget cuts: analysts

Analysis of the Conservative government’s federal budget delivered yesterday afternoon in the House of Commons continues to pour in from financial experts.

Consultant firm KPMG says the budget is focused on innovation, something that Canada needs to do better. “Canada continues to lag behind other coutnries when it comes to private sector investment in R&D and more importantly, the commercialization of research into products and processes that create high-value jobs,” KPMG says in an article.

Technology-based startup firms and small businesses in Canada received boosts in the form of more direct funding for research and development and venture capital. $400 million of new funding has been set aside for private sector investments through the Economic Action Plan 2012, and the Business Development Bank of Canada will continue its mandate to support venture capital activities with $100 million.

The National Research Council will have an increased mandate to assist with small to medium-sized businesses through its Industrial Research Assistance Program with a new line item worth $110 million. A new concierge service at the Ottawa-based centre will directly assist businesses in seeing the most benefit from federal innovation programs.

There are also changes to the Scientific Research and Experimental Development (SR&ED) program, which businesses turn to for tax credits when they invest in research and development. The overall effect reduces the funds government will pay out to firms in the form of tax credits.

Companies can no longer count capital expenditures towards receiving a tax credit as of 2014. Also, only 80 per cent of contract payments can be used for calculating tax credits staring in 2013. While the tax rate for large businesses has been cut to 15 per cent, it will remain at 35 per cent for small companies.

David Kaplan, president of Web-based software firm SREDable.com, expressed surprise that the government favoured small business in the budget, rather than larger enterprise.

“In our view Flaherty made this change because a small number of large companies received 50% of the $3.6b in credits awarded in 2011. By reducing the value of credits paid to large companies the government reduces their overall SR&ED payout substantially,” he writes in a press release.

Other changes to SR&ED include a reduction of the amount that can be applied to direct labour costs. The proxy overhead calculation will dip from 65 per cent to 55 per cent starting in 2014.
The Canadian Revenue Agency will also be conducting a pilot project to see if it can execute a pre-approval process for businesses to receive tax credits.

Brian JacksonBrian Jackson is the Associate Editor at ITBusiness.ca. Follow him on Twitter, read his blog, and check out the IT Business Facebook Page.
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