Posted at 12:00 p.m.
Two years ago, I wrote an open letter entitled “Small businesses, the big ones forgotten”1.
I showed that Quebec disadvantaged small businesses by making them pay the multinational’s tax and by blocking their access to the tax credits created to help SMEs experiencing a labor shortage. Premier of Quebec, I was asking you to put an end to this tax injustice. Two years later, not only does the injustice persist, but the situation is worse than ever!
If, by misfortune, a person here decides to launch his business in the service or construction sector and pays less than 5,500 hours annually (nearly three full-time employees), unlike the other Canadian provinces, Quebec will refuse him the reduced tax rate for SMEs.
Many of these businesses depend on independent factors that impact paid hours, especially those that are seasonal in nature. The reduction in working hours is sometimes linked to external and uncontrollable elements. Let’s think of a well-established restaurateur who may experience a drop in attendance due to major municipal roadworks who may decide to reduce his hours of operation. Or to a plumbing company that is reducing its hours with a view to gradual retirement. What about the economic restrictions which, since March 2020, have reduced the paid hours of many small businesses?
Moreover, your government made an adjustment in the budget of March 25, 2021 so that the economic restrictions do not explode the taxation of small businesses already subject to the reduced tax rate. And for the others? The gap has increased to 259% because you made the right decision to lower the tax rate for SMEs to bring it back to the same rate as Ontario, unfortunately without abolishing the criterion of paid hours. To explain the decrease in the SME rate, your Minister of Finance said during the budget speech: “The government wants our small businesses to become medium-sized and our medium-sized businesses to become large Quebec businesses. We give them a helping hand for this purpose. We agree, but why put even the smallest companies in the service and construction sectors at a disadvantage?
You like to compare yourself to Ontario. I confirm that, as in all other Canadian provinces, such tax injustice does not exist.
In addition, Ontario has a higher share of businesses with fewer than five employees than Quebec: 58.4% of businesses compared to 53%. We have to believe that our neighboring province is not afraid to rely on its smallest businesses to stimulate its economic growth.
The unique tax injustice in Quebec hurts. For a profit of $150,000, we are talking about $12,450 more tax to pay! Why ? Because the company is not headquartered west of the Ottawa River? Because it does not come from the manufacturing or primary sectors? Because it doesn’t have enough employees? On this last point, with the labor shortage, the situation is even more difficult.
Disadvantaged labor and small businesses
The stakes are such that nearly two out of five SMEs in Quebec have to refuse contracts or sales. Worse still, if the issue persists or worsens, 57% of SMEs do not think they will survive for more than four years. However, access to the tax credit for experienced workers – and for workers with severe employment limitations – imposes the same access barrier related to paid hours in businesses in the service and construction sectors. construction (5000 hours in this case, to be precise). Below this threshold, they cannot benefit from a reimbursement of up to 50% of the share of employee contributions for an employee aged 60 or over (up to $1,250 per employee) and from a rate of 75% for an employee aged 65 or over (up to $1,875 per employee). If the business falls below the threshold, the credit rate is easy to remember: 0% for $0.
In short, a lack of employees can mean a tax increase or the loss of tax credits linked to the shortage of workers. One wonders how it would be possible to adopt policies more unfavorable to small business.
Mr. Prime Minister, I will end this open letter with the same words that I wrote on February 16, 2020, hoping that this time you will hear them:
Mr. Prime Minister, Mr. Minister of Finance and Mr. Minister of Labour, Employment and Social Solidarity, I am asking you: please put an end to this inequity […] when the budget is tabled. This would make a big difference for our small businesses, which create jobs and wealth in all regions of Quebec.