Canada budget boosts business tax incentives

Canada’s new federal budget outlines tax incentives and spending initiatives designed to improve productivity and drive economic expansion. Key provisions, including the recently announced Productivity Mega Deduction and expanded capital gains exemptions for qualifying businesses, will affect advisors’ clients while potentially influencing bond and equity markets nationwide.

Experts, such as Judith Charbonneau Kaplan, Vice-President at Wellington-Altus, describe the spending package as more measured, with key takeaways for advisors lying in its specific details. Charbonneau Kaplan notes that the budget is “business-as-usual,” with “little, somewhat niche changes” that may impact clients.

Key Tax Considerations

Charbonneau Kaplan highlights the key tax considerations, including a shift in filing deadlines to a single deadline on May 15th, which “avoids the interminable tax filing season.” Previously, most Canadians filed by April 30 and those with business income by June 15, so the consolidation to May 15 streamlines the process and reduces the prolonged filing window. The budget also includes a new $15 million capital gains exemption called the Canada Growth Incentive, in addition to the Productivity Mega Deduction announced in September.

Hemal Balsara, Head of tax, retirement and estate planning at Manulife Canada, notes that the $15 million tax deduction is “huge” and will encourage investment in the country. However, Charbonneau Kaplan cautions that the details of the new growth incentive are not yet sorted out, and its impact on business owners who have issued new shares from budget day onwards is still unclear.

The Canada Growth Incentive will primarily cover businesses in technology and manufacturing, reflecting the government’s preference for sectors with significant productivity benefits. Charbonneau Kaplan notes that several sectors, including professional services and real estate, will be excluded from the exemption.

Impact on Business Owners

Josh Nye, Senior Economist at RBC Global Asset Management, notes that the budget’s new spending will result in a projected increase in the deficit to around 1.8 per cent of GDP. It’s worth noting, however, that the 2025 budget had projected a deficit to GDP ratio of 2.1 per cent and the aforementioned higher revenues brought the number down. Canada’s deficit position, Nye notes, is still strong relative to many of its developed market peers.