Tax Cuts Stunting Small Business Growth

As a small business owner in Canada, you are naturally always thinking of ways to grow your company. Having worked with numerous entrepreneurs over the past several years, Synergy Merchant Services has become well-acquainted with this strong entrepreneurial spirit, and we are proud to assist such people with their dreams.

Of course, we often recommend utilizing our merchant cash advance program for such business-building decisions as renovations, advertising and expansion. There are, of course, numerous ways that one can grow his or her small business in Canada. However, according to QMI Agency’s Stefania Moretti in an article published yesterday, a tax break is not one of them.

She writes that economists Jack Mintz and Duanjie Chen have determined that tax breaks actually stifle the growth of small businesses. Based on a new report released yesterday by the University of Alberta’s School of Public Policy, this discovery is quite the eye opener.

Mintz and Chen found that some provinces that recently either nixed or reduced corporate taxes discovered that it neither boosted economic growth nor produced more job opportunities. And even though tax cuts have helped some new businesses to get off the ground, not many have grown.

Offered Mintz and Chen about this finding: “The incentives undermine the neutrality of the overall tax system and the goals of simplification, economic efficiency and fairness. Ironically, the current system encourages companies to break up into smaller, less efficient units (to avoid paying more).”

As well, Moretti mentions that the tax cutting system creates a “wall of taxation” that actually penalizes companies in the process of growing. She writes that “effective tax rates virtually double when a company goes from $1 million to $30 million in asset size. And small business tax breaks disproportionately benefit wealthy Canadians.”

So what would be an alternative solution to helping Canadian small businesses to grow? Mintz and Chen believe that both the feds and the provinces should push the concept of investing in depreciable assets. As well, they should “create a capital gains incentive for small businesses going public and reduce the lock-in effect of capital gains taxes.”