The Canadian Federation of Independent Business (CFIB) is calling on the federal government to lower the small business tax rate, expand tariff relief and reduce employment costs in its Nov. 5 budget, saying current policies leave many smaller firms facing barriers to growth.
The business group wants the federal small business tax rate reduced to 6 per cent from nine per cent, along with changes to tax thresholds and government support programs that it says would help entrepreneurs manage costs and reinvest in their businesses.
Tax relief tops small business agenda
The CFIB says the federal small business tax rate has remained at nine per cent since 2019 and argues that lowering it should be a priority in the upcoming budget.
"Several media reports indicate the upcoming budget may focus on small businesses and include measures such as lowering the small business tax rate and reducing EI premiums for smaller payrolls. If true, this would be very good news," said Dan Kelly, CFIB President. "The federal tax rate has been stuck at 9% since 2019. It's time Ottawa improved Canada's tax system, and that starts with cutting taxes for small businesses."
The organization is also seeking an increase in the small business deduction threshold from $500,000 to at least $700,000, with future adjustments tied to inflation. The deduction provides eligible businesses with access to the lower federal corporate income tax rate on qualifying income.
Some critics argue the deduction discourages businesses from expanding beyond the $500,000 corporate income threshold. However, CFIB analysis indicates that about 0.4 per cent of businesses claiming the deduction have income levels at the current threshold, suggesting the vast majority are not directly affected by it.
"Very few businesses sit near the threshold, and many of those that do tend not to stay there year after year and actually often speed up their investments, not hold back," said Simon Gaudreault, CFIB Chief Economist and Vice-President of Research. "The real constraints to growth have more to do with the overall tax burden, heavy regulation, financing and economic conditions. That's why cutting the small business tax rate matters."
Tariff relief remains a concern
The CFIB is also calling for changes to federal tariff support programs, saying many small businesses affected by U.S. trade measures cannot access available assistance.
More than two months after U.S. Section 338 tariffs took effect on Aug. 22, many small firms remain ineligible for federal support. Although the Regional Tariff Response Initiative was expanded on Sept. 8, most regions still require applicants to have at least $1 million in annual revenue, excluding many smaller businesses from applying.
The organization wants the federal government to direct counter-tariff revenues to businesses affected by the Canada-U.S. trade dispute and introduce relief options for firms with annual revenue below $1 million.
"Ottawa didn't design these programs with small firms in mind. More than 50,000 small firms are caught in the trade crossfire, and it is deeply unfair that most are deemed too small to qualify for tariff relief available to larger firms," Kelly added. "A full 90% of small business owners believe Ottawa should be using the revenue generated by counter tariffs to provide help to those most affected."
Proposed changes extend beyond corporate taxes
The CFIB's recommendations for the 2026 federal budget include several other measures intended to reduce costs and adjust tax rules for smaller businesses.
The group wants the goods and services tax and harmonized sales tax registration threshold increased from $30,000 to at least $60,000 and indexed annually to inflation. The threshold has not changed since 1991, according to the organization.
It also wants the Canada Pension Plan basic exemption raised from $3,500 to $7,000, with annual adjustments. The exemption has remained unchanged since 1998.
On employment costs, the CFIB is proposing lower Employment Insurance premiums for smaller employers. Under its recommendation, employers would be allowed to pay the employee premium rate on total wages below $600,000, similar to the EI Small Business Job Credit introduced in 2015 and 2016.
The organization is also seeking changes to capital gains taxation. Its proposals include a 33 per cent capital gains inclusion rate on the next $2 million in gains beyond the Lifetime Capital Gains Exemption for small firms. It also wants a tax rollover policy that would exempt capital gains arising from the sale of a business's shares or assets when the proceeds are reinvested in a Canadian-controlled private corporation within three years.
CFIB calls for policies to support reinvestment
The organization says its proposals are intended to give business owners more flexibility to invest, hire and expand rather than rely on direct financial assistance.
"Small businesses tell us they don't want handouts. They want broad policies that would help them reinvest in their businesses and plan for the future. While major project investments usually get the spotlight, we also need to be building the foundation of our economy by making it more attractive to start and grow a small business," said Corinne Pohlmann, CFIB Executive Vice-President of Advocacy. "When government cuts taxes, business owners put that money back into the economy by raising wages, hiring or expanding. This budget is Ottawa's chance to show entrepreneurs it takes their concerns seriously."