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Some Tax support for small business Canada's federal tax system provides provides considerable support for small business. Tax measures such as a lower lower tax rate for small business, special treatment for capital gains and enhanced enhanced incentives for research and development development reduce federal taxes paid by small businesses by more than $3 billion annually. This information sheet highlights several tax measures which benefit Canadian small businesses and compares compares them with the tax treatment of small business in the "United States. While it does not cover all aspects of the Canadian and U.S. tax systems, it identifies areas of particular importance importance for small businesses in Canada. Lower tax rates Federal corporate tax rates for small business are much lower in Canada Canada than in the U.S. The key difference: difference: Canadian-controlled private corporations corporations are eligible for a special deduction that reduces their federal income income tax rate from 28.8 to 12.8 per cent (including the 3-per-cent surtax) on the first $200,000 of business income. income. By contrast, the preferential small business tax rate treatment in the U.S. applies only up to income of U.S. $75,000 (Cdn. $88,000). Income above this level is subject to the full 34-per-cent tax rate. An additional 5- per-cent tax also applies for income between U.S. $100,000 and U.S. $335,000. The chart on the next page The Canadian Statesman 'M/uAfUen., Bowmanville, Wednesday, December 23,1992 27 Support for Small Business illustrates the advantages to small business corporations in Canada. Provincial Provincial and state tax rates are also important. important. Many provinces also provide special reduced tax rates to small business. business. This is in addition to small business business "tax holidays" and tax incentives for venture capital corporations investing investing in small business. The average provincial small business business income tax rate is about 8 per cent, which is higher than the average effective U.S. state corporate income tax rate of about 5 per cent. Yet since federal rates are much lower in Canada, Canada, the combined federal and provincial provincial small business tax rate is below the combined federal and state corporate corporate tax rate in the U.S. at most incomes incomes levels. Lifetime capital gains exemption Canada's lifetime capital gains exemption exemption provides an incentive for individuals individuals to invest in small business. Sales of qualified small business shares are eligible for an exemption of $500,000. This is particularly advantageous advantageous for a husband and wife because spouses may file separate tax returns when reporting income from their business. This means that a full $1 million in capital gains may be earned tax free. In addition, only 75 per cent of capital gains above the exemption is subject to tax in Canada. The U.S. tax system does not provide provide an exemption for capital gains, or Winning Entries in Junior Sheep Show a comparable preferential tax rate. The entire capital gain is subject to tax in the United States. Research and development The Canadian system has generous tax incentives for scientific research and experimental development (R&D). In a recent study, the Conference Conference Board of Canada showed that Canada's system of R&D tax incentives incentives is the most generous of all G-7 countries. Both current and qualified capital R&D expenditures are deductible deductible in full as they are incurred, and are eligible for tax credits. The general R&D tax credit rate is 20 per cent. Small businesses receive an even higher level of incentive. Eligible Eligible Canadian-controlled private corporations corporations may earn tax credits at 35 per cent, and the credits are refundable refundable up to certain limits. The U.S. system of R&D tax incentives incentives is not as generous. It does not allow capital expenditures to be written written off. fully in the first year. A 20- per-cent R&D tax credit is available, but it can only be earned on "incremental" "incremental" qualifying current R&D expenditures expenditures -that is, on those expenditures expenditures in excess of a base period amount. The dividend tax credit In the United States, business income income distributed as dividends is effectively effectively taxed twice - companies are taxed on this income at the corporate rate, and then shareholders are taxed at their personal rate when they re : ceive dividends. The Canadian tax system alleviates this double taxation by providing shareholders with a dividend tax credit. credit. This credit means that dividènds income income is taxed at a much lower rate. Including provincial and state taxes, the combined personal and corporate tax rate in Canada on. income qualifying qualifying for the small business deduction is just over 45 per cent, compared to about 60 per cent in the U.S. In some cases, shareholders of certain certain closely held corporations carrying on a business in the U.S. may treat corporate income as personal income, and pay personal tax on the income as it is earned in the business. However, this provision is much narrower and less beneficial than Canada's approach approach to taxing small business corporations. corporations. Lower health costs For small businesses, health care costs in Canada are much lower than in the U.S. In Canada, health care costs are covered by universal public medicare, which is funded out of general tax revenues revenues and employer contributions. In 1989, the average contribution by Canadian Canadian employers was about $350 for each employee. In the U.S., private health care costs for businesses are much higher - especially for small businesses that are unable to qualify for the discount premiums availablé to some of the larger firms that insure many employees. employees. According to a study by the National National Federation of Independent Business, Business, the average annual health care costs for small business employers in the U.S. amount to over $3,500 for each employee. Lower social security and payroll taxes Social security and payroll taxes are of particular concern to small business business in both countries. These taxes must be paid on behalf of each employee employee regardless of the level of profits profits being generated by the business. Total social security and payroll taxes in Canada are significantly less than in the United States. In 1989, these taxes amounted to 4.6 per cent of GDP in Canada, compared to 8.8 per cent of GDP in the U.S. In fact, Canada's level of social security and payroll taxes as a percentage of GDP is the lowest of all G-7 countries. Recent budget measures Canada's 1992 federal budget contains contains two additional measures that will directly enhance the competitiveness of the country's system of small business business taxation. Both of these measures will help to answer small business financing financing needs. The Small Business Financing (SBF) program will allow incorporated incorporated and unincorporated small businesses businesses in financial difficulty to borrow funds and refinance at interest rates below those normally charged in the market. The program operates by providing providing preferential tax treatment to interest interest received on SBF loans, permitting permitting financial institutions to reduce the amount of interest charged to small business borrowers. The second measure improves the access of small businesses to financial capital by increasing the maximum amount that can be loaned to them under under the Small Business Loans Act (SBLA). The allowance for increased government-guaranteed SBLA loans will better equip small businesses to finance start-up capital, and capital for expansion and modernizing of existing existing enterprises. Around the Town UNITED WAY WELCOMES DONATIONS - The United Way of Oshawa/Whitby and Newcastle continues to welcome donations to the 1992 campaign which is short of its goal by about $300,000. There is an urgent need for more contributions if United Way's 40 agencies are to be adequately adequately funded next year. Your donation can be turned in at the Community Care office located at the comer of King St. and Scugog St., in Bowmanville. . VIDEO GAME HEADQUARTERSFORTHE IMOIÜID/AYS Bowmanville's Largest Selection of Games for: nintendo^Lsuper nintendqXsega genesis .Caesar's Palace Panic Restaurant Widget Rocky & Bullwinkle Lemmings Mega Man 5 Blue Marlin Adventure Island 3 Super Star Wars Fire Power 2000 Chester Cheetah Wordtris Out of this World Push-Over Jeopardy NHLPA Hockey'93 "All the Newest Titles" Batman Returns Pigskin Footbrawl T2 - The Arcade Game TMNT - Hyper Stone Heist Sonic The Hedgehog 2 Leader Board Golf Ariel - The Little Mermaid NHLPA Hockey '93 SPECIAL Machine Rentals 2 DAY and WEEKLY game rentals for all systems Rental Rates Vi Price if rented after 9 p.m. (2 controllers included) EVERY TUESDAY and THURSDAY RENT I VIDEO GAME AND GET A SECOND GAME RENTAL FREE (Iday rental only) to our VIDEO SCRATCHMANIA WINNERS: 239 King Street E., Bowmanville 623-6977 Proper identification required for all rentals. Parental Authorization required to rent to children under 18. The above photos show two local winners in the Royal Junior Sheep Show at the recent Royal Agricultural Winter Fair in Toronto. Sara Bragg received first prize in the Champion Junior Division and| Mark Bragg won first prize in Conformation.