Jewellers are winners but Canadian wine makers and small breweries will have to wait under tax reforms aimed at small business in the latest federal budget.

In accepting a recommendation from the Commons finance committee, the Martin government intends to phase out the excise tax on jewelry over five years.

The tax will be cut to 8% from 10% immediately, and will decrease an additional two percentage points a year until it is eliminated.

Phasing out excise tax on jewelry will ensure equitable treatment of the Canadian industry and recognize jewelry is available at all price levels and enjoys widespread domestic consumption.

Elimination of the tax will cost Ottawa $100 million by the end of the five-year phase out.

The finance committee also recommended similar assistance for beer and wine makers. But they’re out of luck for now. Removal of excise tax on Canadian wine and beer by small breweries would place undue strain on federal , it said. As a result the committee’s recommendations for beer and wine will remain under consideration by the Department of Finance.

The budget also gives members of Canada’s agricultural co-operatives the right to defer taxes on patronage dividends they receive in the form of shares until those shares are disposed of.

This measure is expected to cost the federal treasury $10 million in 2005-06 and $30 million annually in subsequent years.

Finance Minister Ralph Goodale said in his budget speech in the House of Commons that the government would continue to work with groups like the Canadian Federation of Independent Business to improve productivity for small and medium-sized businesses.

He says the government agrees with businesses that have told Ottawa that depreciation rates in the tax system need to be updated to more accurately reflect the useful life of equipment.

“Building on measures in last year’s budget, we are announcing further adjustments to the capital cost allowance for certain assets,” Goodale said. “Appropriate depreciation will encourage companies to invest more, helping the productivity and competiveness of our economy.”

Among the commodities getting better capital cost allowance treatment in this year’s budget are:

  • Depreciation on combustion turbines that generate electricity goes to 15% from 8%.
  • Electricity and transmission and distribution equipment goes to 8% from 4%.
  • The rate for oil and gas transmission pipelines will go to 8% from 4% and a 15% rate will be set for compression and pumping equipment.
  • Cables used in telecommunications go to 12% from 5%.

Goodale says the government intends to be especially generous in depreciation on assets that are environmentally friendly. Ottawa will increase CCA rates on such environmental technologies to 50% from 30% acquired within the next seven years and will be adding to the list of eligible assets.

The current budget also eliminates the 30% limit on foreign assets held in pension and retirement funds. Elimination of this rule will make more venture capital available to small businesses, the government says.

This is because under the former foreign property rule, most limited partnerships, the main vehicle for VC investment, were classified as foreign assets.. Pension funds have been complaining for years that the foreign property rule has acted as an impediment to VC investing in Canada.

The government promises in the budget to continue working with the investment, venture and angel communities to ensure an efficient VC market that serves small business.

The budget also cuts the corporate income tax rate by two percentage points to 19% and eliminates the corporate surtax, a leftover from the deficit years that was introduced in 1987.

Goodale says these measures will be particularly beneficial to SMEs.