Federal Budget 2023 - What’s in it for Canadian Businesses?

Deputy Prime Minister Christia Freeland tabled the federal budget for 2023 Tuesday afternoon. A budget that was widely predicted to offer targeted inflation relief whilst exercising ‘fiscal restraint’ has indeed delivered on that at least, with no sweeping measures to help either individuals or businesses to combat rising costs. Is there anything in there that may help struggling business owners through the pending economic slowdown as measures to tame inflation finally take hold of consumer and business spending??

Let’s break down what was in there for Canadian business…

Reduced Credit Card Processing Fees

Ottawa says it has reached a deal with credit card companies Visa and Mastercard to lower merchant processing fees by up 27% from their current average rates for more than 90% of credit-card accepting businesses.?

This measure is expected to save small businesses $1 billion over five years. Whilst this is arguably the biggest support for businesses in the budget, more clarification is needed as to which ones will qualify and when it might begin. Watch this space for information on this and whether the agreement can be extended to other credit card providers.?

Multiple Clean Energy Investment Measures

To ensure that Canada reaches its net-zero target by 2035, generates affordable energy, grows the clean economy and does not get left behind the U.S. with regards to green spending, the budget’s biggest allocation of funds go towards clean investment.??

$83 billion has been set aside up to the 2034-35 tax year for clean economy initiatives covering a range of investment tax credits and strategic spending designed to encourage growth in key sectors. These funds include the Carbon Capture, Utilisation and Storage (CCUS) and clean investment tax credits which were announced last year, both of which were added to in this round.?

Some of the key clean energy measures announced were…?

• A refundable 15 percent clean electricity investment tax credit for investments in non-emitting electricity generation systems, and electricity storage or transmission, at a cost of $6.3 billion over 4 years;
• A refundable clean technology manufacturing tax credit equal to 30 percent of the cost of investments in machinery used to manufacture or process clean technologies, at a cost of $4.5 billion over five years;
• A clean hydrogen investment tax credit first tabled in the 2022 fall update, with support ranging from 15 to 40 percent of eligible project costs; and
• At least $20 billion coming from the Canada Infrastructure Bank to support building major clean electricity and clean growth infrastructure projects.

With these initiatives, the government is accelerating the momentum towards net-zero and mitigating dependence on dictatorial economies for critical energy supply and product components. Hopefully, the range of measures announced will attract the private investment required to position Canada as a leading global clean economy; for businesses in the clean-tech and clean manufacturing sectors or entrepreneurs entering this space, there are some good incentives to do so.?

Sales Taxes?

GST/HST treatment of payment card clearing services

The budget proposes to amend the GST/HST definition of “financial service” to exclude payment card clearing services rendered by a payment card network operator to ensure that such services are now subject to GST/HST. The proposed GST/HST amendments are in response to a recent court decision which found that GST/HST does not apply to the supply of payment card clearing services.

Alcohol Duty

Budget 2023 proposes to temporarily cap the inflation adjustment for excise duties on beer, spirits and wine at two per cent, for one year only, as of April 1, 2023.?

Employee Ownership Trusts

The budget outlines the introduction of Employee Ownership Trusts (EOTs). An EOT is a type of employee ownership where a trust holds shares in a company for employees and allows employees to purchase a business from the owner without having to pay directly for shares. As 76% of small business owners could retire in the next decade, EOTs are designed to help with their succession planning and keep businesses and jobs in the community.?

The EOT would be a taxable entity and certain tax rules amended specifically for them…

• The five-year capital gains reserve (capital gains resulting from a qualifying business transfer to an EOT), would be brought into income over 10 years instead which means 10% of the gain would be declared as income each year;
• EOTs would be exempt from the 21-year rule which is in place to prevent the indefinite deferral of tax on accrued capital gains;
• The budget proposes to introduce a new exception to extend the repayment period from 1 to 15 years for amounts loaned to the EOT from a qualifying business to purchase shares in a qualifying business transfer. Businesses would normally be required to include the loaned amount as income in the year it was loaned and repay it within the taxation year to avoid paying taxes on it.?

Budget Small Business Measures Limited

The budget focused definitively on alleviating cost-of-living pressures for low-income individuals and on accelerating Canada’s green and clean economy. There is much more missing from the budget yesterday than was announced in relation to small businesses and those business owners who were hoping for much-needed relief from pandemic debt repayments and rising costs will be concerned.?

The Canadian Federation of Independent Business (CFIB) were disappointed with the lack of debt-relief measures for businesses, over half of whom are thought to be carrying an average of $105,000 in pandemic-related debt. They will be pushing for an extension to the December 2023 repayment deadline for Canada Emergency Business Account (CEBA) loans.?

The absence of any increase to Employment Insurance (EI) premiums was at least a small reprieve.?

Challenging Conditions Continue for Most

In summary, it’s clear that the next six months are going to be particularly challenging for SMEs outside of certain sectors at least, with little respite to be found in this latest budget.?

On a positive note, inflation does seem to be coming down gradually and a lack of widespread government funds flooding the economy should support that in falling further. If business owners are prepared for a stagnation or mild downturn in the economy by conserving valuable cash whilst still investing in strategic initiatives, they will be best placed to take advantage of the upturn when it does happen in late 2023 into 2024.?

Sallyport is here to support businesses through uncertain times with tailored cash flow solutions that help them grow in the short-term, even in these tumultuous times and our personalised approach can be relied upon to set the business up for long-term success.?

Reach out to our team today for more information on the alternative finance options open to you.?