The EY G20 Entrepreneurship Barometer 2013: Canada
Tax and regulation
Pillar ranking: 2
Canada is working hard to create a supportive tax and regulatory environment.
Canada sits only behind Saudi Arabia as the G20’s leading nation in terms of its regulatory and taxation entrepreneurial environment. Its Small Business Lens facility, for example, seeks to engage in advance with the small business community on regulatory change, with a view to ensuring reforms take their concerns into consideration.
Canada’s relatively robust economy has enabled it to provide entrepreneurs with low tax rates and its small deficit in comparison to other G20 nations should ensure corporate and indirect tax rates remain very competitive. Indeed, it may come under pressure to reduce rates even further, though small businesses are already enjoying a C$2b tax cut in 2013.
On the other hand, in its 2012 budget, the Federal Government introduced significant changes to its program of scientific research and experimental development (SR&ED) tax credits.8 As of 2014, all capital expenditures will be excluded from eligibility for investment tax credits. There will also be a reduction in the general SR&ED investment tax credit rate from 20% to 15% on 1 January 2014. The tax savings hoped for between 2013 and 2017 should be diverted into direct support for business-led, industry-relevant R&D and venture capital funds, such as the Venture Capital Action Plan.
Meanwhile, streamlined procedures for entrepreneurs setting up a business are having an impact — starting a business costs less in Canada than anywhere else in the G20, and 44% of Canada’s entrepreneurs say the availability of tax incentives has greatly or somewhat improved over the past three years. This is compared to only 25% across the G20 overall.
However, the Government will need to continue to keep a close eye on the detail of its policies in order to retain their competitive advantage on this pillar. The new Red Tape Reduction scheme has not prevented entrepreneurs reporting some increases in the time required for tax administration.