First of all, I would like to commend you on the choice of location for this meeting. I've been in a lot of stuffy meetings rooms, and this is just a wonderful place to be for a meeting such as this. Whoever is responsible for this made a great choice. Thank you.
My name is Michael Pearson. I'm the president and founder of a software and technology services company called CONTAX. As you may have guessed, I am not from Canada. I wasn't born here. I came to Canada as a young man by myself. I had about enough money to buy a suit and get a job. I got some experience, saved some money, and started my company. That was quite a few years ago. Since then, my company has grown to have over 150 employees in four countries, with nine office locations, including right here in Charlottetown, P.E.I.
I've learned a lot about running a business, from the ground up. Many things I've learned the hard way, and I've had to become an expert in taxation and foreign currency hedging and things that I would never would have dreamed would be important qualities when I first started my business. I'm very appreciative of the opportunities I've had in coming to Canada; I don't take that for granted.
We have a wonderful system here. Many things are great about living in Canada, but it's also a great place to start and grow a business. There are many tax policies and other great things that encourage people to start businesses and grow and prosper here, and I do appreciate that, but obviously things can always be better. That's the reason why I wanted to come and present to you this morning and make my recommendations for changes that I think would make a significant difference to allowing small and mid-sized companies in Canada to grow and prosper.
My first recommendation is around the small business deduction, the SBD, which I'm sure you've been discussing or have been hearing about many times during these hearings. The SBD allows for a lower tax rate on the first $500,000 of taxable income for a Canadian-controlled private corporation, a CCPC. You're probably already aware of that. I'm sure there have been some requests to lower the taxation rate for the SBD. It's currently at 11%, and I know there's been discussion around its future.
My recommendation is slightly different. I don't necessarily agree that lowering the tax rate would have a significant economic advantage or impact, but increasing the threshold would. My recommendation is to increase the threshold from the current $500,000 to $750,000, and then index that threshold to inflation so that it doesn't erode over time. Most other thresholds, obviously, already have been indexed. The SBD, for some reason, hasn't been indexed. I'm not sure if anyone here knows the answer to this, but I believe the SBD threshold has been at $500,000 for roughly a decade.
Why is this important? As a business owner and a principal of the company, the amount of money I take out of the company is not determined by me. It's determined by you, by the taxation laws. My accountant and my finance department tell me how to minimize tax, obviously by taking advantage of the tax structure. By increasing the threshold, I'll be encouraged to leave more cash in the company, and cash in the company is a good thing. It encourages me and all other CCPCs to invest in innovation, technology, and growth, and to create jobs. Once I take that money out of the company, it's not there to do that. Increasing the threshold encourages me and my company and all other CCPCs to leave the money in the business, where it can be put to good use to create growth and jobs.
My second recommendation is around providing incentives and rewards for companies that are creating jobs. There was a program in 2011 called the “HCSB”, the hiring credit for small business. Essentially, any business paying EI premiums, employee premiums, up to $15,000 a year, could qualify for a $1,000-a-year tax credit. That program existed until 2013.
In 2015 a very similar program was put into place. It was called the small business job credit—SBJC—and it expires in 2016. Again, it's a similar program. It's based on the delta, the year-over-year increase in EI premiums, so an employer who is creating jobs and therefore paying more in EI premiums will get a tax credit, but only certain employers, only those employing up to about a dozen people. After that, you cross the threshold and there is no incentive. It's almost like a disincentive.
Once you cross that threshold, there is no tax break, so my second recommendation, and my final one, is to introduce a job credit program that provides a tax credit, but different from the previous programs. They had a good concept, but I don't believe they were well executed. Remove the threshold. There should be no threshold. Any company, any CCPC, that is creating jobs and therefore paying higher EI premiums should get a tax credit as an incentive, as a reward. That money would go back into the company, and for companies that are growing, innovating, investing, and creating jobs, what are they going to do with more money? They're probably going to continue to grow and create more jobs. Perhaps there needs to be a cap on the tax credit at some point, whether it be $10,000 or whatever number is deemed to be appropriate. That's my second recommendation.
Lastly, I would like to mention that my company has benefited from support from the Province of P.E.I. and from the federal government through jobs programs. We are very grateful for that support, particularly to the Honourable—and absent—Mr. Roach for his support here in P.E.I. also. I would encourage you to ask me any questions you may have about those programs, because we have taken advantage of them, and they have paid off very well.