In its 2009 budget, the government is offering small businesses in Canada an increase in the amount of business income eligible for the reduced tax rate available to Canadian-controlled private corporations. It also offering them a temporary break on the purchase of new computers and software.

As of Jan. 1, 2009, the small business deduction rate of 11% applies to the first $500,000 of qualifying active business income, up from the existing limit of $400,000.

“Small business will now be able to save more tax,” says Jamie Golombek, managing director, tax and estate planning at CIBC Private Wealth Management in Toronto.

All other existing rules governing the small business limit will still apply.

The government is also proposing that small businesses get a temporary 100% capital cost allowance rate for computer hardware and systems software acquired after Jan. 27, 2009 and before Feb. 1, 2011. In addition, the rule that restricts capital cost allowance deductions to half of the CCA write-off otherwise available in the first year won’t apply to computers and software bought during this period.

IE