Ottawa introduces small business hiring credit

Tuesday's budget implementation bill includes a tax credit program for small businesses that increase their payroll.

Election pledge among items in budget implementation bill tabled on Tuesday

The budget implementation bill tabled in the House of Commons Tuesday includes a tax credit program for small businesses who increase their payrolls.

The program, Hiring Credit for Small Business, is a tax cut aimed at small businesses and entrepreneurs interested in expansion but reluctant to add workers because of increased overhead costs, especially employment insurance premiums. 

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"Every time a small business hires an additional worker, it results in additional costs — everything from training to EI premiums," says a memo sent to the Conservative caucus and obtained by CBC News.   

The Conservatives pledged to enact this hiring credit during last spring's election campaign. 

The program will give "the small business owner a tax cut equivalent to the additional EI premiums, up to $1,000," the memo says. "As a result, a small business could hire an additional worker at a salary of up to $40,000 or two part-time workers at a salary of up to $20,000 each and they would not have to pay additional EI premiums." 

The Conservatives say this credit provides an incentive for small businesses to create jobs. However, small businesses would not necessarily have to hire new workers to qualify. They could also trigger the credit by increasing wages for existing employees, which would also cause the EI premiums payable to rise. Conservatives maintain the credit could help businesses retain staff.

"Our government appreciates that small businesses and entrepreneurs... are the backbone of Canada's economy and have punched well above their weight in supporting the country's economic recovery," Finance Minister Jim Flaherty told reporters on Tuesday.

Liberal finance critic Scott Brison said in a statement late Monday that this credit is actually an example of the government giving with one hand and taking away with the other: the money received back from the credit will be taxable income for the small businesses who qualify.  

Plus, only the smallest businesses qualify for the credit: the Liberal statement offered the example of a small business with 11 employees earning $38,000 each as being too big to qualify for the credit.

The Liberal statement also notes that an increase in overall EI premiums will hike payroll taxes for Canadian businesses in three months time, meaning that most small businesses will be paying more, not less, thanks to recent government measures.

The measure was included in the 2011 budget first introduced in March before the federal election campaign, and then reintroduced and passed in June. Tuesday's budget implementation bill is necessary to enact changes in that budget.

The government believes as many as 525,000 small businesses and entrepreneurs across the country will be interested in taking part in the program, which the memo says is part of the "strong mandate" for job creation and economic growth given to the majority Conservatives in the last election.

"Canada has now created nearly 600,000 net new jobs since July 2009," the memo says, adding the new program is "an important part of our low-tax plan to complete the economic recovery." 

Business groups such as the Canadian Federation for Independent Businesses have asked the government to lower payroll taxes such as EI premiums during previous budget consultations because they discourage business expansion and can be a drag on overall economic growth and business competitiveness.

Although the NDP supports tax breaks for small businesses in principle, finance critic Peggy Nash suggested Tuesday that investing in infrastructure is a more effective way for the government to create jobs.