Simplifying taxes for small businesses: Importing new ideas

The establishment and growth of small businesses are crucial to Canada’s economic well-being, and tax laws should be designed to promote, rather than impede, their success.

The establishment and growth of small businesses are crucial to Canada’s economic well-being, and tax laws should be designed to promote, rather than impede, their success. It is widely agreed that simplifying aspects of Canada’s complex tax system would greatly benefit small businesses, but doing so is easier said than done.

Around the world, leading tax authorities are studying and putting in place new tax measures to make it easier for small businesses to manage their tax obligations, improve their compliance and reduce the compliance costs. For example:

  • the government of Ireland has proposed tax simplification measures and is consulting on the taxation of “micro” enterprises (i.e., businesses with 10 or fewer employees)
  • the government of the United Kingdom has established the “Office of Tax Simplification” and conducted a tax complexity project that produced recommendations on specific tax provisions that could be simplified
  • Australia’s “Small Business Entities” regime, introduced in 2007, simplified reporting rules for small business

The government of Canada could consider adopting some simplification measures introduced or under review in these tax jurisdictions. These measures include:

  • eliminating annual inventory counts
  • allowing immediate write-off of pre-paid expenses
  • reducing the number of tax depreciation pools and allowing immediate write-off of minor capital costs below a certain threshold
  • simplifying expense claims by eliminating complex calculations or apportionments (e.g., for home office and car expenses)
  • permitting cash basis accounting for receipts and payments for very small businesses, with no accruals
  • setting the equivalent tax rates for small corporations and individuals
  • replacing regular income tax calculations with a presumptive tax based on the form and scope of business activity (e.g., number of employees, electric power consumption, number of tables in a restaurant)

Progressive tax authorities are streamlining their interaction with taxpayers and their advisers by introducing tax filing portals that are user-friendly yet secure. As more taxpayers use third parties to prepare and file their returns, tax authorities are considering providing extra portal functionality to those tax intermediaries that are considered “trusted.”

The goal of these measures is to create a tax system for small business that is simpler and less costly to administer, allowing vital small businesses to focus on growth.

Join in the conversation

Do you agree that Canada should adopt special, simplified tax rules for small businesses? How should “small business” be defined? Do you think Canada should consider importing the above ideas, and do you have other suggestions on how tax compliance could be eased for businesses in this sector?

Post a comment below, or email Bill Dobson directly.

About the Author

Bill Dobson

CPA, CA

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