Canada's small businesses to gain CAD 550 million from a new tax credit
Canada has announced a new small businesses tax credit for years 2015 and 2016. The credit is available to all firms paying employer insurance (EI) premium either less than or equal to CAD 15,000 in 2015 and 2016. The credit can result in 15% of savings every year for small businesses. Nearly 780,000 small businesses are expected to benefit from this credit.
As per the new tax credit, small businesses now have to contribute less towards employment insurance during 2015 and 2016. Presently small businesses are paying employer insurance at a rate of CAD1.88 per CAD100 of insurable earnings paid out to each of their employees. Under the new credit, small businesses will have to pay employer insurance at a lower rate of CAD1.60 on every CAD100 paid to their employees.
Let's say a small business is employing four people and is paying CAD 50,000 per year to each employee. As per the current rate, it has to pay Employment Insurance of CAD 940 per employee (at 1.88 per 100) or CAD 3,760 in total. With the tax credit, for two years the small business will have to pay only CAD 800 per employee (at 1.60 per 100) or 3,200 in total. As a result, the business can get savings of CAD 560 or up to 15% on the original spending.
Businesses do not have to apply separately for this credit as it will be calculated automatically by the Canadian Revenue Agency or CRA. If there is any surplus, the amount will be refunded to the account.
The credit aims to boost employment as more money will be available to businesses. The government hopes will be invested back in the business, and thus create more jobs.