Effective January 1, 2020, Ontario has reduced the Corporate Income Tax for small business from 8.7% to 3.2%.
It was done in order to support Ontario small businesses, to attract new investments to the Province, to enable entrepreneurs to grow their businesses, create new jobs opportunities and to create a more competitive environment for small businesses. The Government considers that lowering taxes will also help entrepreneurs to make business more attractive and profitable for family owned shops and new enterprises.
“Today, there are more than 470,000 small businesses in Ontario representing almost 98% of all businesses in the province. Small businesses provide about one-third of private-sector employment — just over two million jobs — and play a large role in the economy by providing goods and services to larger companies, consumers and government.”
Reducing the Corporate Income Tax will save on average $1,500 annually to more than 275,000 small businesses in the Province.
The governmental news release also stated and described other measures that Ontario has taken in order to incentive the creation of new jobs such as accelerated write-offs of Capital investments and not matching the federal measure that would have increased taxes on some small businesses earning passive income.
How you can benefit from the Corporate Income Tax Rate Cut
According to the Governmental news release, here are two potential scenarios on how all above mentioned measures benefit small businesses:
Savings for a Local Business
To illustrate these savings to a small business, consider Sue’s Bakery, a local business that employs 11 staff including four that earn minimum wage. In total, Sue’s Bakery would see savings of $10,955 in 2020 from Ontario measures, including:
- $935 in Ontario CIT relief from the small business CIT rate cut and from accelerated write-off measures for capital investments,
- $780 in savings from the cancellation of the cap-and-trade carbon tax,
- $2,295 from reduced WSIB premiums, and
- $6,945 from keeping the minimum wage at $14 per hour.
Savings for a Small Manufacturer
To illustrate these savings for a small manufacturer, consider Omar’s Auto Parts Manufacturing, which employs 20 staff including four that earn minimum wage. In total, Omar’s Auto Parts would see savings of $22,565 in 2020 from Ontario measures, including:
- $5,045 in Ontario CIT relief from the small business CIT rate cut and from accelerated write-off measures for capital investments,
- $675 in savings from the cancellation of the cap-and-trade carbon tax,
- $7,200 from reduced WSIB premiums, and
- $9,645 from keeping the minimum wage at $14 per hour.
These are savings that can be reinvested to grow their businesses, buy more supplies and hire more people.