Ottawa introduces small business hiring credit

Thebudget implementation billtabled in the House of Commons Tuesdayincludes a tax credit program for small businesses who increase their payrolls.

The program, Hiring Credit for Small Business, is a tax cut aimed at small businesses and entrepreneurs interested inexpansion but reluctant to add workers because of increasedoverhead costs, especially employment insurance premiums.

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"Every time a small business hires an additional worker, it results in additional costseverything from training to EI premiums,"says a memo senttothe Conservative caucusand obtained by CBC News.

The Conservatives pledged to enact this hiring credit duringlast spring'selection campaign.

The program will give "the small business owner a tax cut equivalent to the additional EI premiums, up to $1,000," the memo says. "As a result, a small business could hire an additional worker at a salary of up to $40,000 or two part-time workers at a salary of up to $20,000 each and they would not have to pay additional EI premiums."

The Conservativessay this credit provides an incentive for small businesses to create jobs. However, small businesses would not necessarilyhave to hire newworkersto qualify. Theycould also trigger the credit by increasing wages for existing employees, which would also cause the EI premiums payable to rise. Conservativesmaintain the credit could help businesses retain staff.

"Our government appreciates that small businesses and entrepreneurs... are the backbone of Canada's economy and have punched well above their weight in supporting the country's economic recovery," Finance Minister Jim Flaherty told reporters on Tuesday.

Liberal finance critic Scott Brison said in a statement late Monday that this credit is actually an example of the government giving with one hand and taking away with the other: the money received back from the credit will be taxable income for the small businesses who qualify.

Plus, only the smallest businessesqualify for the credit: the Liberal statement offered the example of a small business with 11 employees earning $38,000 eachas beingtoo big to qualify for the credit.

The Liberal statement alsonotes that an increase in overall EI premiums will hike payroll taxes for Canadian businesses in three months time, meaning that most small businesses will be paying more, not less, thanks to recent government measures.

The measure was included in the 2011 budget first introduced in March before the federal election campaign, and then reintroduced and passed in June. Tuesday's budget implementation bill is necessary to enactchanges in that budget.

The government believes as many as 525,000 small businesses and entrepreneurs across the country will be interested in taking part in the program, which the memo says is part of the "strong mandate" for job creation and economic growth given to the majority Conservatives in the last election.

"Canada has now created nearly 600,000 net new jobs since July 2009," the memo says, adding the new program is "an important part of our low-tax plan to complete the economic recovery."

Business groups such as the Canadian Federation for Independent Businesseshave asked the government to lower payroll taxes such as EI premiumsduring previous budget consultations because theydiscourage business expansion and can be a drag on overall economic growth and business competitiveness.

Although the NDP supports tax breaks for small businesses in principle, finance critic Peggy Nash suggested Tuesday that investing in infrastructure is a moreeffective way for the government to create jobs.