Small and medium-sized enterprises (SMEs) are the backbone of Canada’s economy—accounting for 63.8% of the private labour force and nearly 73% of all Canadian exporters. Their contribution isn’t just measured in GDP or jobs, but in the innovation, resilience, and community value they bring from coast to coast. They drive local economies, foster entrepreneurship, and support inclusive growth by creating opportunities in underserved and rural areas. SMEs are also key players in adopting sustainable practices, investing in local talent, and contributing to the overall competitiveness of the Canadian market. They often represent family-owned businesses, newcomers, and diverse entrepreneurs whose success directly uplifts communities and reduces economic inequality.
Despite their impact, SMEs continue to face disproportionate challenges compared to larger corporations—rising inflation, complex tax systems, trade barriers, and limited access to working capital. These issues are further compounded by labour shortages, digital infrastructure gaps, and regulatory red tape, which often hinder long-term planning and expansion efforts. Many SMEs also struggle to access the resources needed to digitize operations or expand into international markets, placing them at a disadvantage in an increasingly global and technology-driven economy.
As the Canadian federal government sets its priorities for the upcoming year, it’s crucial that small business voices are not only heard but amplified. At Kingsmen Capital Investments, we believe the following five issues should top the national agenda to ensure long-term success for SMEs.
1. Reducing the Federal Small Business Tax Rate
Currently, the federal small business tax rate sits at 9%. While this is lower than general corporate tax rates, it’s still burdensome when combined with mounting provincial taxes and tariffs.
Why this matters:
Lowering taxes empowers businesses to withstand rising material costs, unpredictable interest rates, and international trade friction.
Recommended action:
Reduce the federal small business tax rate to 0% for the foreseeable future, particularly for Canadian-controlled private corporations (CCPCs) with taxable income under $500,000.
Business impact:
Significant retained earnings can be directed toward upgrading equipment, improving salaries, or launching new services.
2. Increasing the Lifetime Capital Gains Exemption (LCGE)
The LCGE allows business owners to sell shares of their Canadian-controlled private corporations without paying taxes on a portion of the capital gain.
Why this matters:
Succession planning is top-of-mind for aging business owners. Increasing the LCGE provides a more attractive exit strategy and encourages entrepreneurship by rewarding long-term investment.
Recommended action:
Legislate the planned LCGE increase to $1.25 million.
Index the exemption to inflation for ongoing relevance.
Business impact:
Improves the attractiveness of starting and scaling a business, enhances retirement outcomes, and increases reinvestment in the local economy.
3. Leveling the Playing Field on Payroll Taxes
SMEs pay higher payroll taxes relative to their workforce size—especially when it comes to Employment Insurance (EI) premiums.
Why this matters:
Larger firms can absorb payroll taxes more easily due to economies of scale. For small businesses, every dollar spent on mandatory deductions is one less invested in growth.
Recommended action:
Lower the employer EI premium rate for small businesses to match the rate paid by employees.
Consider enhanced EI rebates for employers that do not experience layoffs.
Business impact:
Fairer payroll cost structures encourage job creation and reduce administrative burdens for SME employers.
4. Eliminating Internal Trade Barriers
Canada’s internal trade barriers—differences in rules, permits, and regulations between provinces—are costing the national economy billions in lost productivity and limited business growth.
Why this matters:
SMEs often lack the legal or compliance resources to navigate complex interprovincial rules. These barriers stifle market expansion and limit procurement opportunities.
Recommended action:
Adopt full mutual recognition of rules and regulatory frameworks across all provinces and territories.
Prioritize modernizing trade infrastructure—rail, ports, and digital compliance tools.
Business impact:
Increased ease of doing business across provincial borders—allowing SMEs to grow without unnecessary red tape.
Considerations: Election Platform Promises & Tariff Landscape
It’s also worth keeping an eye on other areas of federal policy with high impact on small businesses:
Immigration Policy Reform
Proposed: Cap Temporary Foreign Workers and international students at <5% of Canada’s population by 2027.
Impact on SMEs: Reduced access to temporary labour could affect retail, hospitality, and agriculture sectors reliant on seasonal or entry-level staff.
Interprovincial Trade Infrastructure
Proposed: Expand trade corridors (ports, airports, highways) to support better business logistics.
Impact on SMEs: Lower shipping costs and faster distribution could directly benefit exporters and e-commerce businesses.
Affordability Commitments
Proposed: Reduce marginal tax rates on the lowest income bracket.
Impact on SMEs: May increase consumer spending and reduce payroll taxes for low-wage employees.
Canada-U.S. Tariffs and Trade Uncertainty
From March to April 2025, tariff escalation between Canada and the U.S. affected key goods such as aluminum, steel, vehicles, and energy. SMEs in manufacturing and distribution have already felt the pinch.
Kingsmen Tip: If your SME is impacted by these tariffs, consider exploring financing options like invoice factoring or lines of credit to buffer short-term disruptions in cash flow.
What This Means for Your Business
Whether you’re running a local construction company, a family-owned food processor, or a B2B service firm, policy changes at the federal level ripple directly into your margins and growth strategy.
Now is the time to:
– Speak to your MP or local chamber of commerce
– Reassess your business structure and tax position
– Look into financing solutions that provide stability amidst legislative changes
At Kingsmen Capital Investments, we help SMEs stay nimble. Our financing solutions—from working capital loans to equipment leasing—can give your business the breathing room it needs while policy catches up with your needs.
Let’s Shape the Future of Canadian Small Business Together
The federal government has a critical opportunity in 2025 to prioritize SMEs—not just in policy but in practice. By eliminating unfair costs, simplifying taxes, and modernizing trade rules, they can unlock a more innovative, inclusive, and prosperous future for all Canadians.
Want to learn how Kingsmen Capital can support your business in this shifting landscape?
Start your financial journey today at www.kingsmen-capital.com
Contact us today to learn more.
Related Reading
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- Preparing Your Business for a New Tax Year
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