For the first time since COVID hit, Saskatchewan businesses will start paying the small business tax rate again, but local business advocates say it’s too soon.
The small business tax rate increased from zero per cent to one per cent on Canada Day, with plans to return to the pre-COVID level of two per cent next year. Prince Albert and District Chamber of Commerce CEO Patty Hughes was disappointed by the decision.
“As a chamber, we had really anticipated and really hoped that the government would have reviewed this, withhold the reinstatement, and (allow) our small businesses to really have an opportunity to get a little wind behind their sails after the pandemic,” Hughes said on Tuesday. “They were just starting to get there, so this is just another little bit of a setback for those who were just starting to get a little ground under their feet.”
Chamber chair Phil Hounjet said the post-COVID recovery has not been the same for all local businesses. Some sectors saw record profits, and are now returning to normal, while others struggled to keep their doors open.
By itself, Hounjet said the one per cent increase isn’t huge, but when you factor in all the other rising costs, it becomes a problem.
“It’s $1,000 per $100,000 in taxable income, but it is an extra cost that businesses are facing,” he said. “You just add that up with everything else …, the challenges of general inflation, wage increases, costs going up for everything, (and) it’s just another thing to add on.”
Hounjet said rising utility rates, property taxes, and rent are all causing challenges for business owners. He said it was nice to have relief from the provincial government, especially since the federal government’s nine per cent small business tax rate never changed.
He added that many Prince Albert business owners have seen their revenue return to pre-COVID levels, but those increased expenses give them less room for error than before.
“In terms of revenue, everything’s back, if not higher, but their expenses are quite a bit more expensive,” Hounjet explained. “When you talk about restaurants, it’s food costs. If it’s any type of retail, it’s supplies. For jobs that are revolving around the service industry, then wages become a challenge as you compete for talent and you have to pay more.
“The health is pretty good in Prince Albert from what I see, but business owners are struggling just to keep that margin there.”
The provincial government reduced the small business tax rate from two per cent to zero per cent in 2020 to help business owners hit hard by the COVID-19 lockdowns. Originally, the decrease was only scheduled to last two years, with a return to the regular rate by 2022. However, the province extended the zero per cent rate by an extra year under a provincial affordability plan announced last summer.
The Saskatchewan chapter of the Canadian Federation of Independent Business (CFIB) welcomed the decision to extend the zero per cent rate last year, but provincial affairs director Brianna Solberg said that extra year alone won’t be enough.
“Given all the challenges small business owners are currently facing, namely heavy debt loads, skyrocketing inflation, increased input costs, and rising interest rates, cost relief is becoming increasingly urgent,” Solberg said in a press release. “With a projected $1 billion surplus in this year’s provincial budget, we would have hoped to see affordability measures announced for small businesses such as holding the small business tax rate at zero per cent.”
Solberg said only half of Saskatchewan small businesses are back to their pre-pandemic revenue levels, while input costs such as fuel continue to rise.
Debt is also an issue. The CFIB’s latest Saskatchewan small business owner survey shows the average business carrying around $63,000 in debt. Solberg said many business owners worry they’ll never be able to pay off their debt, especially with the federal CEBA loan repayment deadline coming in December.
According to the most recent CFIB survey, 62 per cent of Saskatchewan small businesses say taxes and regulatory costs are a major constraint. That’s second only to fuel and energy costs (67 per cent).
The Canadian Taxpayers’ Federation (CTF) has also criticized the province’s decision to start reinstating the small business tax. CTF Prairie Director Gage Haubrich said temporarily eliminating the tax saved small businesses a collective $189 million. He said that’s pocket change for the provincial government, but represents a significant financial hurdle for small businesses.
“The provincial government decided to get greedy instead of continuing to give small business owners a break,” Haubrich said. “These extra taxes are a drop in the bucket for the government, but the extra cost could break a small business.
“Other provinces are cutting taxes and that helps businesses cut down costs,” Haubrich added. “Saskatchewan is going in the wrong direction by raising this tax. It needs to get rid of it for good.”
The Ministry of Finance issued a statement to the Daily Herald on Tuesday saying the small business tax rate reduction was a temporary measure to support small business owners.
“Saskatchewan continues to have the highest small business tax income threshold in Canada at $600,000,” reads the statement.
“Careful and thorough review of fiscal policy and taxation is part of the annual budget development process. Government is committed to growth that works for everyone, and this includes the continuous evaluation and consideration of economic relief measures and policies that support small businesses and Saskatchewan residents.”
