Ahead of the federal budget, most medium-sized Canadian businesses are concerned about their tax burden and want the government to move in lockstep with the U.S. by investing in tax relief so they can compete in the green economy, finds a new KPMG in Canada survey. 

The survey of 505 medium-sized companies reveals that nearly eight in 10 (79 per cent) believe the overall level of taxation that small and medium-sized enterprises (SMEs) currently pay is too high and hurts their competitiveness with the U.S. Given economic headwinds, 84 per cent of respondents worry they would not be able to manage a hike in taxes, and are calling on the federal government to match the investment tax credits and supports offered to U.S. businesses via the U.S. Inflation Reduction Act. 

“There is a clear connection between effective tax polices and business activity and investment in Canada,” says Lucy Iacovelli, Canadian Managing Partner, Tax, KPMG in Canada. “These business leaders face pressures not only to re-invest in their business but also to achieve their net-zero goals. They worry that new taxes will hinder economic growth and their global competitiveness, particularly with the U.S.

“These leaders want the government to respond to emerging business needs and effectively use the tax system to boost productivity as well as support decarbonization and clean technologies. Previously announced business tax incentives should move ahead without further delay and new supports be provided, otherwise Canadian businesses risk falling behind, adds Ms. Iacovelli. 

Key poll findings: 

• 79 per cent believe that the overall level of taxation that small and medium-sized enterprises (SMEs) currently pay is too high and hurts their competitiveness with the U.S. 

• 83 per cent say further tax relief is necessary to encourage businesses to re-invest in their operations and hire more workers.

• 83 per cent say to scale-up, SMEs need more tax incentives/credits than large corporations to encourage investments in innovation, digital transformation and research and development. 

• 91 per cent agree their company needs new tax credits to encourage investment and support Canadian start-ups, enabling them to scale up and stay in Canada once they commercialize.

• 78 per cent believe imposing special taxes on profitable industry sectors is punitive, will inhibit growth and discourage foreign investment.

• 81 per cent expect more economic uncertainty over the next decade due to the transition to net-zero carbon emissions.

‘Top 5’ budget wish list

Business needs are not limited to tax relief and greater government investments.  When asked to rank the most important business priorities in the upcoming budget, respondents indicated:  

Top business priorities for Budget 2023

1. Strengthen Canada’s supply chains / improve the flow of goods

2. Relief for SMEs hurt by higher interest rates / borrowing costs

3. More support to SMEs for carbon reduction/to achieve ESG goals

4. Funding to develop made-in-Canada, affordable climate technologies (e.g. renewable energy, carbon capture etc.)

5. Job training/upskilling for the skills employers and our economy needs

Source:  KPMG March 23, 2023 news release