The federal budget was released on Tuesday, February 27 and FranNet had a look at what the budget means for small businesses and entrepreneurs and, by extension, franchisees. The media has touted the recent budget as a win for women, as it has measures to close the gender wage gap and it includes a commitment to introduce a new Employment Insurance Parental Sharing Benefit that will provide five extra weeks of “use it or lose it” EI parental benefits when both parents share the leave.
Specifically for small businesses, the budget had the following four elements:
Passive Income Cap
This year’s budget looked to right a perceived wrong from last year when it came to small business tax reform. Back in the summer of 2017, the federal government planned to increase tax on passive investment income within private corporations.
Passive income is when a business owner takes company profit and invests it in stocks or mutual funds to grow that money.
Since corporate income is taxed at a lower rate than personal income, it’s understood that business owners will spend that passive income on growing their business, thus creating more jobs. However, some business owners were using the lower corporate tax rate for personal saving from passive income and not putting that money back into their business. Plus, some wealthy individuals were essentially acting as corporations to grow their investment portfolios at the lower corporate tax rate, allowing them to skirt the higher personal income tax rate.
The proposal from last year to raise the passive income tax rate through a complicated strategy was met with outcry from the business community, which voiced concern over a higher tax burden and more complexity during tax time.
In response to this backlash, the most recent budget offers a toned down version of this tax rate change. Companies will be taxed at the special small business tax rate of 9% for the first $50,000 of passive income they earn. After $50,000, the rate at which they are taxed will gradually increase up to $150,000 of passive income. Any business bringing in over $150,000 of passive income will be taxed for it at the regular corporate tax rate. This is a much simpler approach to taxing corporate passive income than the previous proposal in 2017.
The new rules will take effect for tax years starting after 2018.
The budget earmarked $1.4 billion in new financing available to women-led businesses over the next three years through the Business Development Bank of Canada (BDC). This new round of funding is in addition to the Venture Capital Catalyst Initiative, which was announced by the government in 2017, with the goal of funding up to $1.5 billion of Canada’s venture-capital market.
The government wants to support the growth and development of women-led businesses on an international scale and help grow them ‘into competitive, sustainable world-class companies.’ Through Export Development Canada, it has also pledged $250 million over three years for export financing and insurance for women-owned and women-led companies.
In addition to those financial commitments, the federal government aims to increase the amount of business it does with women-owned businesses. Currently, the amount of women-owned businesses the federal government deals with for contracted work is about 10% and it hopes to raise that to at least 15%.
To help get women ready to own their own businesses, the BDC will also offer boot camps to help train them in business ownership along with $9.5 million over three years to assist with the gathering and sharing of data for women entrepreneurs to make a clearer path to business ownership.
On the intellectual property front, the federal government said it will invest $85.3 million over five years on a new intellectual property strategy. The strategy is designed to give businesses — particularly startups in the technology sector — that create unique, valuable and proprietary products and services more confidence that their ideas and patents will be protected.
The new, beefed up strategy will give small businesses better access to legal advice concerning intellectual property and create a patent marketplace for licensing and sale of intellectual property, as well as a “patent collective” to pool entrepreneurs’ patents.
Research and Innovation
To help foster innovation and research, the government promised $4 billion to help Canadian scientists and researchers access the best tools, technology and facilities to perform their research. In addition to that, the budget called for a $2.6 billion investment over five years in Canada’s various innovation programs.
On top of that spending, the government vowed to reform those innovation programs to simplify and streamline the process for entrepreneurs who want to receive help from those programs. These changes will take place over the next two years. While the amount of funding in innovation programs will increase, the actual amount of innovation programs will shrink by up to two-thirds due to the simplification and streamlining process. But, the government promised to honour all existing program applications.
The new budget offered some real hope for women who want to become franchise owners, and some clarity for franchise owners who generate passive income within their companies. Also of note is the easier path to help with innovation and intellectual property counselling. If this most recent federal budget has inspired you to look into franchise ownership, now is the time to contact FranNet. Sign up for a free FranNet franchise search and consultation today and let us help you on your way to business ownership.