The SBD reduces the federal tax rate on business income of a Canadian-controlled private corporation by six percentage points, from 15 per cent to nine per cent. But the story does not end there.There are additional provincial and territorial rate reductions, so the exact combined differential between the small business rate and the general rate depends on the relevant province or territory.
Benefits equivalent to Canada’s small business rate are generally not available in other countries. For example, a 2015 OECDreviewed tax rate differentials in 38 OECD and G20 countries. Besides Canada, only 11 of the 38 had lower rates for small and medium-sized business enterprises . Using the correct “firm size” numbers , SMEs employed 58 per cent of private-sector workers in 2018, large businesses 42 per cent. And large businesses tend to have greater productivity and pay higher wages than small firms. In other words, SMEs are critical to the Canadian economy, but so are large businesses.Article content continued
But there are two sets of dividend rules — one for “eligible dividends,” such as those paid by public corporations, and another for dividends paid by Canadian-controlled private corporations from income that has benefitted from the SBD. Two sets of rules result in extraordinary complexities and significant compliance costs, which fall almost entirely on small business.
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