SME tax rate | Independent companies and the PQ demand flexibility

SME tax rate |  Independent companies and the PQ demand flexibility

(Quebec) The Parti Québécois (PQ) is rallying to a demand formulated by 22 associations in the service and construction sectors urging Quebec to relax tax rules by allowing small businesses to benefit from a general tax rate reduced.

With the COVID-19 pandemic having hit Quebec’s SMEs hard, independent businesses are worried that the economic turmoil of the past year has the collateral damage of causing their tax rate to explode.

The reason ? Quebec requires the service and construction sectors to attain a number of paid hours (the approximate equivalent of three full-time employees) in order to obtain the Small Business Deduction (SBD). This tax measure grants a reduced tax rate, compared to the general rate of approximately 11.5%.

However, the Canadian Federation of Independent Business (CFIB) estimates that 54% of SMEs in the province were still not functioning, last November, with all their staff, while businesses “are struggling to resume their cruising speed.”

The CFIB also unveiled on Tuesday the results of a survey of its members which revealed that “a third (34%) of SME managers in Quebec say their business will run out of cash before the summer” and that “two entrepreneurs in five (37%) also say that their business was already in difficulty before the new economic restrictions began ”.

“It seems obvious that the effects of the pandemic are being felt on employment in our SMEs and, incidentally, on the number of hours worked, which will put many small businesses at risk of seeing their tax rate explode”, deplore 22 associations from the construction and service sectors in a letter sent last fall to the Minister of Finance, Eric Girard.

“This tax injustice is not only theoretical, entrepreneurs will suffer the direct negative consequences in one of the worst moments in their history”, they denounce.

An unfair measure, pleads the PQ

The leader of the PQ, Paul St-Pierre Plamondon, adds his voice to the concern expressed by small businesses, while Quebec is these days starting prebudget consultations in anticipation of the budget that will be tabled next spring. According to him, “we are faced with a bad policy which is even more aggravating in times of pandemic”.

“This measure, which was put in place in 2013 by the Liberals, penalizes companies that do not reach the figure of three to four employees by taxing them more,” he said.

It does not make sense. […] We find ourselves penalizing companies that are suffering from the crisis from a tax standpoint and favoring those that have had no impact on their turnover.

Paul St-Pierre Plamondon, head of the PQ

“For the year 2020, we are asking the government to standardize the reduced tax rate [sans y rattacher un nombre d’heures travaillées], because we are in a crisis context. […] For the rest of things, we will have to reconfigure [cette mesure] which poses several problems, ”adds Mr. St-Pierre Plamondon.

A petition is posted

The CFIB also posted a petition to business executives on Tuesday, calling, among other things, that the government end “an end to a tax injustice affecting the smallest businesses in the construction and service sectors that do not have access to the reduced tax rate ”.

“On this last point, a small company in these sectors which has reduced its number of employees due to the pandemic (approximately 2 employees) could see its tax rate explode by 130%”, laments the Federation, recalling that almost half of Quebec’s SMEs have fewer than five employees and are therefore at risk of seeing their tax rate increase.

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