Photo courtesy of: Adrian Wyld / The Canadian Press
Finance Minister Chrystia Freeland delivered the latest federal budget last week with a strong focus on housing, defense, and artificial intelligence (AI). There were many parts of this budget that will affect business in Manitoba. A few of them are highlighted below:
Carbon Tax Rebate Will Help Small Businesses
The Manitoba Chambers of Commerce (MCC) has been advocating for a reimbursement of the federal carbon tax and this was a key win for business in this budget. For businesses with fewer than 500 employees, the rebate will be retroactive to businesses that have filed tax returns back to the 2019-2020 tax year. Reimbursement will be delivered by direct payments from the Canada Revenue Agency and is expected to support 600,000 businesses across Canada.
Capital Gain Inclusion Rate Strains Investment
Unfortunately, the budget also proposed changes to the capital gains inclusion rate for capital gains above $250,000. This change will be effective on June 25th and increases the inclusion rate to two-thirds from one-half. There are certain carve-outs for sales of small business shares, and farming and fishing property, but overall, this policy will act as a disincentive to investment, especially for small ventures in smaller markets like Manitoba. Additionally, while the government expects to collect $19.4 billion from this change, there is potential for behavior change to lessen this amount and put the government in a more difficult fiscal position.
Laying the Foundation for More Homes
A key opportunity for our growing municipalities is the Canada Housing Infrastructure Fund which is expected to provide $6 billion over 10 years to provinces and municipalities for housing-enabling water, wastewater, and other infrastructure needed to foster new housing construction. It will be critical for Manitoba and its municipalities to advocate for their projects to ensure that Manitobans develop the infrastructure to build the necessary homes for our population growth.
Funding for Technology Adoption and Development for Businesses
The budget included a larger package related to Artificial Intelligence (AI), but specifically included $300 million over five years to foster solutions and adoption of AI for businesses. This funding will be distributed through the Regional Development Agencies (PrairiesCan in Manitoba) and the National Research Council. Given the significant opportunity for businesses to increase their productivity, this will be something that MCC highly encourages businesses to explore. Additionally, the budget introduced measures to incentivize investments in research and development spending. Specifically, businesses will be allowed to immediately write-off expenses related to patents, data network infrastructure and data processing equipment, and computers by revised capital cost allowance classes. This is a small stimulus for investment, but the government is also reviewing the Scientific Research and Experimental Development (SR&ED) tax incentive which may lead to further ways that businesses can cover their innovation expenses.
Indigenous Financial Support
The federal government is proposing up to $5 billion in loan guarantees to enable more Indigenous communities to benefit from natural resource and energy development projects. In Manitoba, this will increase the capacity for Indigenous communities to benefit from the mineral development projects ongoing throughout the province. If Manitoba Hydro were to change its stance on private generation, this would also open another significant opportunity for Indigenous communities. Additionally, Indigenous Financial Institutions are set to receive $350 million in extra funding over the next five years. This will help support Indigenous entrepreneurship in the province including for businesses with Métis ownership. These funding programs are important opportunities for businesses in the province to create economic and job growth and increase inclusion in our economy.
Streamlining Internal Trade
The federal government has stated their priority to reduce interprovincial trade barriers, with the launch of the Canadian Survey on Interprovincial Trade slated for June. This survey will highlight the top interprovincial trade barriers to be eliminated so it will be crucial for Manitoba business participation for our local situation to be improved.
More Clean Electricity
The government also announced a Clean Electricity Investment Tax Credit which promises a 15% refundable tax credit for investments made in low-carbon electricity generation including hydro and wind generation, and electricity transmission between provinces. This is a great opportunity for Manitoba Hydro to build additional generation capacity and further support our neighbors with our renewable energy. Given Manitoba’s predicted future capacity constraints, it will be critical for the province to capitalize on this credit program.
Notable Budget Omissions
Given the prior funding available for digital adoption for businesses, no new budget was allocated to help businesses grow or enhance their digital offerings. The only reference to cybersecurity spending was related to national defense, despite the ever-growing threat that businesses face. Additionally, the budget lacked a clear focus on improving the productivity of Canadian workers, with no real incentives provided to increase business investment in our country, and the tax changes acting as additional barriers to new investment.
Overall, while the federal budget has some concerning tax implications, there are also some measures for businesses that will help them with growth and development. In particular, small businesses will benefit from the Carbon Rebate, but businesses would be advised to consider the implications of additional funding for AI adoption and other development incentives. Please reach out to the Manitoba Chambers of Commerce should you require more information on the implications of the federal budget for your business.
