The 2010 Federal Budget was announced last Thursday, March 4th, and it looks like the government is on track with the Economic Action Plan. Although it will still be some time before Canada sees a full recovery, we are headed in that direction. There are quite a few positives that are worth mentioning to provide a clearer picture of the recovery that Canada has made to date.

• This year, Canada will have the lowest overall tax rate on new business investment in the G7.
• By 2012, Canada will have the lowest statutory corporate income tax rate in the G7.
• Canada’s federal tax-to-GDP (gross domestic product) ratio is at its lowest level since 1961.
• As a result of the expiration of the Economic Action Plan and the measures in this budget, the deficit is projected to decline by almost half over the next two years to $27.6 billion in 2011–12, and by two-thirds to $17.5 billion in 2012–13. In 2014–15, the deficit is projected to be $1.8 billion.
• Finance minister predicts real growth in economy of 2.6% in 2010 and 3.29% in 2011.
• One objective was to maintain or create 220,000 jobs – Action Plan has contributed to the creation of over 135,000 jobs recorded since July, 2009.

Budget Highlights

• Under Year 2 of Canada’s Economic Action Plan, $19 billion has been allotted in new federal stimulus to create and maintain jobs, complemented by $6 billion from provinces, territories, municipalities and other partners;
• Over $4 billion in actions to create and protect jobs. This includes additional Employment Insurance (EI) benefits and more training opportunities to help unemployed Canadians through this difficult period, and help ensure they are equipped to re-enter the workforce and prosper in the future.
• $7.7 billion in infrastructure stimulus to create jobs. This will modernize infrastructure, support home ownership and improve social housing across Canada. This builds on the $8.3 billion investment in infrastructure and housing delivered in 2009–10.
• $2.2 billion to support industries and communities. This will support adjustment and provide job opportunities in all parts of Canada that have been hit hard by the economic downturn. It provides support for affected sectors, including forestry, agriculture, small business, tourism, shipbuilding and culture.
• Providing $3.2 billion in personal income tax relief to support growth and job creation.
• Delivering $1.6 billion to strengthen benefits for the unemployed.

(more…)

The past year and a half has seen trying times for many businesses across all industries. Companies have been forced to drastically cut costs to stay alive, and many are dependent on the outcome of the upcoming Federal Budget to further ensure their survival. We have seen some positives in the economy that indicate a recovery is on the way: January 2010 marks the fourth employment gain in the past 6 months with the unemployment rate at 8.3%; CMCH (Canadian Mortgage and Housing Corporation) forecasts that the housing starts for 2010 will be 180,000 units which is up from 149,000 units in 2009; and the Bank of Canada anticipates that the interest rates will rise Q3 2010. Although Canada is in a great position for recovery and we were far less impacted by the recession than any other country in the world, we do expect that it’s going to take some time to turn around yet. Many industries are hopeful that the when the Federal Budget is announced this Thursday, March 4th it will bring them some relief in the form of tax breaks. Let’s take a look at how our biggest industries have been affected during the recession and what they are asking for.

Canadian Manufacturers

• More than 239,000 jobs lost in 2009
• Sales of Canadian produced goods fell from monthly peak average of $54B mid 2008 to a low of $34B mid 2009 (consumers stopped buying, foreigners stopped importing, and banks stopped lending in 2009)
• According to Canadian Manufacturers and Exporters (CME) foreign merchandise sales from August 2008 to August 2009 fell 31.6%
• Canadian manufacturers want Ottawa to start cutting the deficit and national debt without boosting taxes
• Also asking for tax changes to allow money spent on employee training to be applied towards reducing company’s EI premiums

Lumber and Pulp-and-Paper

• Rising Canadian dollar negatively impacted the industry’s exports
• US housing starts dropped 38% in 2009 (National Association of Realtors)
• Softwood lumber shipments down 21% and Pulp-and-Paper down 18% during first 11 months of 2009 compared to same period in 2008
• Canadian log cutters looking to emphasize new products rather than new markets
• Asking Ottawa for a switch to production of bio-fuel and bio-products through tax incentives and a made-in Canada energy policy that will enable them to better tap into the fast expanding green market

Information Technology

• The IT sector was hit far less than other industries – PC shipments down 2% in 2009 (source: Gartner)
• Gartner predicts that PC shipments will increase by 12.6% in 2010
• The Information Technology Association of Canada (ITAC) is asking the federal government to stick to their plan of expanding the country’s broadband network
• Also want to extend 2011 deadline to end favourable tax treatment of computers and software (temporary 100-per-cent capital cost allowance (CCA) rate for computers acquired after January 27, 2009 and before February 1, 2011)

Oil and Gas

• At 2008 peak, barrel of Brent oil from North Sea cost $144.95 US and that same barrel went for $38.12 US a year later
• US Energy Information Administration predicts that a barrel of West Texas Intermediate crude (average price of $61.66 US/barrel in 2009) will be $79.78 in 2010 and should rise to $83.50 in 2011
• Canadian Association of Petroleum Producers (CAPP), which measures oil activity in terms of capital spending forecasts that members will invest $40B in exploration and production in 2010 compared to $34B that the same companies spent in 2009
• CAPP asking Ottawa to allow oil drillers to write off 100% of exploration costs in the first year (to delay phase-out of accelerated tax write-off treatment for oil sands development costs) and to expand existing scientific tax credits

Banks

• In 2008, the top 8 Canadian banks earned $474B which is a drop of 35% or $25B from a year earlier but saw a gain of 33% for the 3-month period ending October 31,2009
• Canada avoided most of the turmoil because our major banks weren’t huge buyers or sellers of exotic debt instruments
• Bankers want to see Ottawa stick to their current plan of cutting corporate income tax to 15% by 2012 and to implement recommendations that came from a 2008 advisory panel concerning international taxation
• Also asking that the federal government allow for consolidated tax reporting by Canadian companies

Stay posted for more updates on the Federal Budget and how your business could be impacted!

Lines of credit have almost completely dried up in this recession, and it’s harder than ever for businesses to fund their new development projects.  Ontario’s Advanced Manufacturing Investment Strategy (AMIS) is a great venue for Ontario manufacturers to pursue. What’s more, AMIS is available to companies from all manufacturing sectors in Ontario. The $500 million dollar provincial program focuses on:

• industrial R&D
• design/prototyping/engineering
• new/ advanced products/materials
• advanced manufacturing processes
• robotics/software development
• waste reduction
• energy conservation

AMIS, when granting a loan, can provide up to 30% of the total eligible costs of a project (up to a limit of $10M). This funding is given in the form of a repayable loan. The loan is interest free and principal free for up to five years, providing the company receiving it meets job and investment targets mutually agreed upon between the company and the province. After that period, the repayment rate is the province’s cost of borrowing, plus an additional 1%.

To be eligible, projects must create and/or retain at least 50 jobs. Alternatively, the projects must invest $10 million over the 5 year period. The costs eligible for the loan (excluding ongoing costs of production or operations) include:

• research and development
• equipment and machinery
• materials
• construction/facility improvements
• training
• overhead
• labour (one time only)

The terms for the loan are negotiated individually. After completing the application process, most companies receive word of the province’s decision within a relatively speedy 45 calendar days. This sometimes may take longer for the more complicated applications. The Minister of Finance, along with the Minister of Economic Development, approve or deny applications based on the guidelines of the AMIS Assessment Committee.

What’s more, for those manufacturers who regularly claim for SR&ED, receiving an AMIS loan has no impact on SR&ED eligibility. The AMIS loan is not affected if a business has already received an SR&ED return or income tax credits.  Companies that have received AMIS funding often include extra cash procured by SR&ED towards their projects. In fact, any business that has received SR&ED credits is more likely to be meeting the AMIS eligibility requirements.

For more information about AMIS, visit http://www.ontariocanada.com/ontcan/en/progserv_amis_en.jsp