Fall 2025 Pre-budget Submission

CFIB recommendations

CFIB recommends that the government:

1. Pass legislation to confirm the non-taxability of the Canada Carbon Rebates for Small Businesses, the extension of the filing deadline, and the increase of the Lifetime Capital Gains Exemption to $1.25 million.
2. Ensure timely payment of outstanding Canada Carbon Rebates.
3. Introduce a rebate for those who held inventory with the fuel charge embedded when the application of the fuel charge ceased.
4. Keep the capital gains inclusion rate at its current level and deliver the promised Canadian Entrepreneurs’ Incentive (CEI).
5. Lower the Employment Insurance (EI) premium rate for smaller employers to the same rate paid by their employees.
6. Increase the Canada Pension Plan (CPP) basic exemption amount.
7. Repeal the escalator tax on alcohol.
8. Apply the Goods and Services Tax (GST) on goods before tariffs are applied.
9. Increase the maximum threshold of the small business deduction (SBD) to $700,000, and the passive income amount to $60,000, and index them to inflation moving forward.
10. Reduce the small business tax rate (SBTR) from 9% to 0% for the foreseeable future, as an economic stimulus measure.
11. Introduce a business income deduction for personal income tax filers, similar to the Qualified Business Income (QBI) deduction in the U.S.
12. Make Immediate Expensing, the Accelerated Capital Cost allowances, and Employee Ownership Trusts (EOT) tax incentives permanent.
13. Reduce red-tape by adopting a two-for-one rule that applies to all rules.
14. Ensure there is a policy of mutual recognition across all jurisdictions to reduce barriers to internal trade.
15. Return the money collected through Canadian counter tariffs to impacted small businesses.
16. Expedite the tariff remission process and introduce exemptions for SMEs using the CBSA’s Assessment and Revenue Management System (CARM).
17. Balance the overall budget through legislated spending limits.

Context

Small- and medium-sized entreprises (SMEs) continuously seek ways to increase sales, grow their business, support their employees, and contribute to their communities. However, they are grappling with reduced consumer spending, the high cost of doing business, excessive red tape, and trade uncertainties - among other challenges. All these factors affect small businesses’ viability and ability to invest, thereby impacting Canada’s economy and productivity.

In his May 21st Mandate Letter, the Prime Minister identified seven priorities with a strong focus on growing the economy. SMEs need the government to clearly outline how it plans to achieve “spending less on government operations and investing more in the people and businesses that will build a strong economy.”¹ As the foundation of Canada’s economy and representing 50% of its GDP, this submission shares recommendations on how best to support Canadian SMEs in the upcoming Fall 2025 Budget.

Carbon tax

The CFIB welcomed the government’s June 30th announcement that it would introduce legislation to confirm the non-taxability of the Canada Carbon Rebates for Small Businesses and extend the 2023 tax filing deadline to be eligible for the rebates to December 31, 2024. However, as of July 2025, this legislation has yet to be tabled, and it is unclear when the remaining rebates owed to small businesses will be delivered. We call on the government to introduce and pass the relevant legislation, ensure timely payment of outstanding rebates, and introduce a rebate for those who held inventory with the fuel charge embedded when the federal government ceased the application of the fuel charge on April 1st, 2025.

According to the 2023-2024 Public Accounts, the government collected $3.3 billion more than it had given out by the end of that fiscal year, in part because the Canada Carbon Rebate for Small Business had yet to be paid.² The government must ensure that all carbon tax dollars collected are returned, and that SMEs get their fair share.

Capital gains tax

The announcement that the government would drop the ill-conceived capital gains inclusion rate hike on March 31st was welcomed. The inclusion rate must not be increased. In fact, it needs to be lowered. During this same announcement, and during the election, it was promised that the government would increase the Lifetime Capital Gains Exemption to $1.25 million.³ While it is our understanding that the Canada Revenue Agency (CRA) has implemented the change, we urge the government to include this increase in the Fall 2025 Budget and related Budget Implementation Act.

Further, the Fall Budget should deliver the promised Canadian Entrepreneurs’ Incentive (CEI) in budget 2024, which would provide for a lower inclusion rate on up to $2 million in capital gains, to support business investment and growth. Its scope and eligibility requirements should be expanded, and it should include the sale of certain assets.

Investing more in businesses: The fiscal environment

Taxes increase the cost of doing business and can be a drain on productivity. To address Canada’s “long-standing weak productivity,”⁴ government must let SMEs retain more of their revenues.

Small businesses are more sensitive to Employment Insurance (EI) costs as they are more labour-intensive and do not have access to the economies of scale and capital of larger enterprises. CFIB recommends introducing a lower EI premium rate for smaller employers, either through a permanent, targeted, refundable EI premium credit like the 2015 and 2016 Small Business Job Credit (SBJC) or by moving the employer/employee split from 60/40 to 50/50. About 86% of small business owners would support lower EI premiums.⁵ Now is not the time to do anything that would result in higher EI premiums for SMEs. Reducing EI premiums is one of the mechanisms the government could use to lower the impact of tariffs on small businesses who must pay EI whether they are profitable or not. To ensure the added costs to the EI system are not at the expense of workers or employers, the federal government should fund this support through general revenues/counter-tariff proceeds, rather than the EI account.

CFIB also recommends that the government increase the Canada Pension Plan (CPP) basic exemption amount, which has been at $3,500 since 1997. This would provide financial relief for employers and employees alike. If the threshold was still equal to 10% of the Yearly Maximum Pensionable Earnings (YMPE) today, employers and employees would not pay contributions on the first $7,300.

While personal income tax brackets are indexed annually, the small business deduction (SBD) and the passive income amount have not changed since 2009 and 2018 respectively. The government should increase the maximum threshold of the small business deduction to $700,000, and the passive income amount to $60,000⁶ and index the thresholds going forward so they can retain their value over time. Similarly, the luxury tax threshold, which has remained at $100,000 since 2022, would be nearing $110,000. It should be indexed to inflation if not completely repealed.

Further, the government should examine the relationship between taxes that apply on taxes. For example, the automatic escalator on the alcohol excise tax should be permanently capped or completely repealed, as the Goods and Services Tax (GST), which is sensitive to price changes, already applies to the sale of these goods. Further, the GST should be calculated on the value of the goods before tariffs are applied, not after. While it can be recovered, the upfront payment strains cash flow and involves unnecessary paperwork.

CFIB recommends reducing the small business tax rate (SBTR) from 9% to 0% for the foreseeable future as a means of stimulating the economy in a difficult economic period. This would be one way to alleviate the impacts of tariffs on small businesses and provide businesses with additional liquidity to invest in their operations. Over 93% of small business owners would support a lower small business tax rate.⁷

Canada should also implement a business income deduction for personal income tax filers, like the Qualified Business Income (QBI) deduction in the U.S., so unincorporated businesses such as sole proprietorships are able to retain more of their earnings and be more competitive.

To further encourage investment and business growth, the government should make Immediate Expensing and the Accelerated Capital Cost allowances permanent and available to businesses in all sectors as opposed to targeting specific sectors.

Over $2 trillion in business assets could change hands within the next decade as 76% of small business owners plan to exit their business.⁸ Tax incentives for Employee Ownership Trusts (EOT), which enable business owners to sell to their employees, are expiring December 31, 2026. The EOT tax incentives should be permanent.

The strategic use of simple tax relief measures can drive significant economic benefits for businesses, their employees, and the broader economy, and supports the goal from the Speech from the Throne that “… the Government will take a series of measures to catalyze new investment.”

Red tape and internal trade

Excessive red tape and bureaucracy is a driver of “long-standing weak productivity [and] is straining government finances.” Reducing red tape needs to be a priority. Government must measure and report on the total number of rules in place and update the “one-for-one” rule to a “two-for-one” rule that applies to all regulations, legislation (e.g., the Income Tax Act), and policies. This could unlock $18 billion currently wasted on red tape.⁹

The objective of building one Canadian economy by removing barriers to interprovincial trade¹⁰ is one that our members support. About 90% of small businesses believe it is crucial for Canadian governments to prioritize removing barriers that impede the flow of goods, services, and labour across provinces¹¹. Bill C-5 An Act to enact the Free Trade and Labour Mobility in Canada Act and the Building Canada Act, which seeks to recognize comparable provincial requirements for the trade of goods between provinces and applies the same approach for workers, recently received Royal Assent. Provinces are also making announcements on internal trade. While progress is being made, different jurisdictions are taking different approaches to mutual recognition, which can build barriers rather than knock them down. CFIB recommends adopting a policy of mutual recognition across all jurisdictions to truly build “one Canadian economy.”

Trade-specific recommendations

Four in five SMEs have experienced tariff-related impacts such as increased costs for goods/supplies (51%), reduced profits (35%), and lower customer demand (35%).¹² The money collected through Canadian counter-tariffs must be returned to impacted Canadian small businesses. The government must also expedite the tariff remission process and introduce exemptions or alternative financial security options for SMEs using the CBSA’s Assessment and Revenue Management System (CARM), such as credit cards for Release Prior to Payment (RPP) to encourage and support SMEs’ participation in international trade.

Public finance

The federal government has run a deficit since 2015/2016. Many small business owners fear this will result in higher taxes and lower investments. Over 80% of small business owners believe that balancing the budget should be a top priority for the federal government.¹³ CFIB recommends implementing a clear path to balancing the overall government budget with legislated spending limits for the government outside of a global crisis and meaningful actions to reduce the size and cost of the federal public service.

Conclusion

Overall, we live in very challenging times. That is why, as this government strives to transform Canada’s economy, it must remember to foster an economic environment where small businesses can thrive.

For more information, please contact:

Jasmin Guénette

Vice-President, National Affairs

jasmin.guenette@cfib.ca

CFIB's Fall 2025 Pre-budget Submission

Download our recommendations that will help hundreds of thousands of SMEs face current and future challenges.

Footnotes

1. Prime Minister, Mandate letter, May 21, 2025. Online: https://www.pm.gc.ca/en/mandate-letters/2025/05/21/mandate-letter
2. Government of Canada, Public Accounts of Canada 2023-2024. Online: https://www.tpsgc-pwgsc.gc.ca/recgen/cpc-pac/2024/pdf/2024-vol1-eng.pdf. See pg. 16/438.
3. Prime Minister, News Release, March 21, 2025. Online: https://www.pm.gc.ca/en/news/news-releases/2025/03/21/prime-minister-mark-carney-cancels-proposed-capital-gains-tax-increase
4. Prime Minister, Mandate letter, May 21, 2025.Online: https://www.pm.gc.ca/en/mandate-letters/2025/05/21/mandate-letter
5. CFIB, Your Voice Survey, February 2024
6. Bank of Canada Inflation Calculator results, rounded down, as of July 2024. Online: https://www.bankofcanada.ca/rates/related/inflation-calculator/
7. CFIB, Your Voice Survey, February 2024
8. CFIB, Succession Tsunami – Preparing for a decade of small business transitions in Canada, 2023
9. CFIB, Canada's Red Tape Report, Sevent Edition, 2025
10. Prime Minister, Mandate letter, May 21, 2025. Online: https://www.pm.gc.ca/en/mandate-letters/2025/05/21/mandate-letter
11. CFIB, The State of Internal Trade: Canada’s Interprovincial Cooperation Report Card, 2024
12. CFIB, Survey on the impacts of US-Canada Trade War, March 20, 2025, n=2,952
13. CFIB, Your Voice Survey, December 2023, n = 2,966. Note: this data includes net high priority and medium priority.