Here's a list of the main Canada income tax changes that may affect your small business taxes for the tax year 2008. 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.)
The general corporate tax rate for 2008 is 19.5%.
Capital Cost Allowance
Computer equipment and systems software - 55% Capital Cost Allowance (CCA) rate (Class 50)
This applies to assets acquired after March 18, 2007. 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 – 50% CCA rate (now Class 29)
"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 one year and will apply to eligible assets acquired before 2010." (page 34 of T4012: T2 Corporation Income Tax Guide 2008). (Emphasis theirs; different rules apply to manufacturing and processing machinery and equipment purchased in 2010 and 2011.)
Green Incentives – 50% CCA rate (now Class 43.2)
The federal government is encouraging businesses to invest in using greener energy sources by lifting CCA restrictions on the use of certain types of energy. Specified clean energy generation equipment (CCA class 43.2) acquired before 2020 is now eligible for a 50% CCA rate.
This now also applies to assets such as ground source heat pump systems and biogas production equipment acquired after February 25, 2008.
Also, certain user restrictions are being lifted for waste-to-energy applications such as thermal energy systems, bio-oil and biogas. (See page 34 of T4012: T2 Corporation Income Tax Guide 2008).
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 at the rate of 35% on current and capital SR&ED expenditures, up to the expenditure limit – and the expenditure limit is increased to $3 million for tax years that end after February 25, 2008.
"This expenditure limit becomes nil when the taxable income of the corporation and its associated corporations for the previous tax year reaches $700,000". (See page 65 of T4012: T2 Corporation Income Tax Guide 2008).
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.
SR&ED Expenditures Outside Canada
Normally you would be filing Form T661 Scientific Research and Experimental Development (SR&ED) Expenditures Claim only if you carry on business in Canada and incurred expenditures for scientific research and experimental development (SR&ED) you carried on in Canada.
Now, however, you can also claim expenditures for salary or wages incurred for SR&ED activities carried on outside Canada after February 25, 2008. (See page 41 of T4012: T2 Corporation Income Tax Guide 2008).
Two Other Small Business Tax Credits
Apprenticeship Job Creation Small Business Tax Credit
Employers can earn Investment Tax Credits 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 Tax Credit 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 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 66 of T4012: T2 Corporation Income Tax Guide 2008).
For more information on Investment Tax Credits for individuals (sole proprietorships and partnerships) see T2308: Investment Tax Credit (Individuals).
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.
