UPDATE: Lobby groups react to small business tax rate cut in P.E.I. budget

Small businesses got a bit of a tax break in Friday’s provincial budget but not as much as some business lobby groups were seeking.

Finance Minister Heath MacDonald said the 0.5-per-cent tax break could lead to annual savings of $2,500 for small businesses. In addition to the tax break, the province is launching a new Small Business Investment Grant comprised of a 15-per-cent rebate on business investments up to $25,000.

Related: P.E.I. government tables balanced budget with $1.2 million surplus and increased spending

Penny Walsh McGuire, executive director of the Greater Charlottetown Area Chamber of Commerce, said the chamber was advocating for a tax reduction to 2.5 per cent in 2018 and to two per cent in 2019. The 0.5-per-cent reduction in the budget only brings the small business tax rate down to four per cent.

“Although the reduction is certainly a step in the right direction, it still leaves us with the highest small business tax rate in Atlantic Canada and the second highest in Canada,” she said.

With respect to the grant, Walsh McGuire said it is a positive signal to small businesses that helps them access capital and invest in the economy. Walsh McGuire said other parts of the budget, such as the investment in students to keep them on P.E.I. as well as the basic personal tax exemption increase of $1,000 over two years, were positive steps. She added that she would have liked to have seen the tax exemption more in line with inflation.

Erin McGrath-Gaudet, director, P.E.I. and Intergovernmental Policy with the Canadian Federation of Independent Business, said she would have liked to have seen the small business tax rate knocked down to three per cent. She also wants to see the province follow through on its suggestion that reducing the small business tax rate could be a “multi-year commitment.”

“Certainly, we would not want to stop here, though. I certainly would want to see this continue in future years to make sure that we are allowing small businesses to keep some profit so that they can then reinvest in their businesses,” said McGrath-Gaudet.

She agrees with Walsh McGuire that the grant was a positive step for small businesses. In one way, she says the grant is not “administratively heavy” with “a lot of red tape.” She explained  that the rebate does not have to be applied for in advance, but can be applied for while doing business taxes with your accountant.

MacDonald was asked why the tax rate wasn’t reduced more than 0.5 per cent.

“When we do a grant, we know that money is going directly back into that business … But if you do a 0.5 (per cent tax cut) to accompany, there’s possibilities that’s a dividend going to shareholders, that’s a possibility somebody might be taking a vacation … There’s an argument on both sides. It’s not necessarily proven that may right go back into creating more jobs or wealth for P.E.I. The grant program, we know (it’s) an investment that is going directly back into that business asap,” he said.

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