Here's a list of the main Canadian income tax changes that may affect your small business taxes for the 2009 tax year. While there are no changes that will have you leaping to your feet and starting to cheer here, income tax decreases and increased small business tax credits are always welcome - especially if they apply to your small business.
The Corporate Tax Rate
The corporate tax rate declines from 12% to 11% (as of January 1, 2008) for Canadian-controlled private corporations claiming the small business deduction. (See Corporate Tax Advantages of the Canadian-Controlled Private Corporation for details.) This is the net tax rate before surtax of the federal corporate tax rate (Part I tax).
The general corporate tax rate for 2009 (as of January 1) is 19%. It was 19.5% in 2008.
Increase of the Business Limit for T2 Returns
For calendar years 2009 and later, the maximum allowable business limit for a corporation that is not associated with any other corporation is $500,000. The maximum business limit was $400,000 in 2008.
(The Business Limit is used to calculate the Small Business Deduction, a tax deduction available to Canadian-controlled private corporations.)
Capital Cost Allowance
Computer equipment and systems software becomes a much faster write-off with the new Capital Cost Allowance rules for such equipment purchased after January 27, 2009 and before February 1, 2011 (Class 52). The Capital Cost Allowance rate is 100% and (to make it an even better deal) the standard half-year rule does not apply, meaning that you can fully write off eligible computer equipment and systems software in the same year you purchase it.
Computer equipment and system software acquired after March 18, 2007, and before January 28, 2009 is now assigned to Capital Cost Allowance (CCA) Class 50 with a CCA rate of 55%.
The computer equipment and/or systems software must not be used "principally as electronic process control, communications control, or monitor equipment" (Canada Revenue Agency).
Manufacturing and processing machinery and equipment is now Class 29 with a CCA rate of 50%.
"Currently, manufacturing and processing (M&P) machinery and equipment acquired after March 18, 2007, and before 2009, that would otherwise be included in Class 43 (eligible for a 30% declining balance CCA rate), is included in Class 29 and eligible for a 50% straight-line CCA rate. This will be extended for two years and will apply to eligible assets acquired in 2010 and 2011." (page 35 of T4012: T2 Corporation Income Tax Guide 2009). (Emphasis theirs.)
SR&ED (Scientific Research & Experimental Development)
Increase of the SR&ED Expenditure Limit
Canadian-controlled private corporations (CCPCs) that qualify can earn refundable Investment Tax Credits on their Canadian income tax at the rate of 35% on current and capital SR&ED expenditures, up to the expenditure limit of $3 million for tax years that end after February 25, 2008.
"This expenditure limit begins to reduce when the taxable income of the CCPC in the previous tax year exceeds $400,000 and becomes nil at $700,000" (See page 66 of T4012: T2 Corporation Income Tax Guide 2009).
Don't Miss Out on the SR&ED Tax Credit Program explains how the Investment Tax Credits work and how your small business can qualify.
Two Other Small Business Tax Credits
Apprenticeship Job Creation Small Business Tax Credits
Employers can earn Investment Tax Credits on their Canadian income tax equal to 10% of the eligible salaries and wages paid to eligible apprentices employed in their businesses in the tax year to a maximum credit of $2,000, per year per apprentice. To qualify the apprentice must be in a prescribed trade and in the first two years of their registered program.
Investment Small Business Tax Credits for Child Care Spaces
Creating one or more new child care spaces in a new or existing licensed child care facility for the children of their employees and for other children in the community will also earn employers an Investment Tax Credit on their Canadian income tax equal to the lesser of $10,000 or 25% of the eligible expenditure incurred after March 18, 2007, per child care space created. (This tax credit does not apply to child care service businesses.) Eligible expenditures include the cost of depreciable property and the amount of specified start-up costs. (See page 67 of T4012: T2 Corporation Income Tax Guide 2009).
If you are operating a sole proprietorship or a partnership, you can still get in on both the Apprenticeship Job Creation Small Business Tax Credits and the Investment Small Business Tax Credits for Child Care Spaces; see Investment Tax Credit: Individuals (Canada Revenue Agency) for details.
The great thing about these small business tax credits is that generally Investment Tax Credits can be carried back three years and carried forward 20 years, letting you reduce your federal income tax for a particular tax year.
Tax Filing Changes
Canadian Income Tax Mandatory Internet Filing
Almost all corporations with annual gross revenue of more than $1 million will have to Internet file their T2 income tax return for tax years ending after 2009. (There are some exceptions to this rule such as non-resident corporations and insurance corporations.)
Ontario Only Needs One T2
This is small business tax news that I think definitely rate at least one cheer; if you run a corporation that has a permanent establishment in Ontario, you now only have to file one T2 Income Tax Return with the Canada Revenue Agency (for tax years ending in 2009 or later), rather than having to fine one with the Canada Revenue Agency (CRA) and a separate one with the province of Ontario.
You can also file the Corporations Information Act Annual Return with your T2 return.