IMPACT OF THE 1987 TAX REFORM ON CAPITAL EXPENDITURE BY SMALL BUSINESSES

ABSTRACT Although several tax measures in the pre-1987 federal budgets had been aimed at to promote small business, the Government of Canada took a U-turn in its policy towards small business in 1987. The 1987 Tax Reform (White Paper), to be denoted by TR87 hereafter, introduced some major changes in business taxation which were particularly adverse for small business. In this paper, it is shown how a marginal project, undertaken either by general small business or small manufacturing business, becomes significantly unprofitable due to changes in the statutory tax rate, depreciation rules, the investment tax credit (ITC) rates, etc. introduced by the TR87. Nearly every tax change, related to small business, is shown to be detrimental to investments undertaken by small businesses.