Targeted personal tax cuts and the GST reductions are not the only tax relief planned in Tuesday’s budget. Corporations and small businesses will also enjoy their fair share of tax relief.

Among a host of business-friendly measures, the budget proposes reducing the general corporate income tax rate to 19% from today’s 21% by 2010, eliminating the corporate surtax for all corporations by Jan. 1, 2008 and eliminating the federal capital tax as of Jan. 1 of this year.

Under the measures announced in the budget on Tuesday, the general corporate income tax rate will be reduced to 20.5% effective Jan. 1, 2008. It will slide to 20% effective Jan. 1, 2009, and to 19% on Jan. 1, 2010.

Currently, the corporate surtax applies to all corporations. It was already announced that the tax would be eliminated for small and medium-sized in 2008. Tuesday’s budget proposes to eliminate the tax for all remaining corporations, effective Jan. 1, 2008. The government estimates that its elimination is equivalent to a 1.12 percentage point reduction in corporate income tax rates. And, it says, it will simplify the tax system.

Moreover, the government proposes to eliminate the federal capital tax, retroactive to the start of 2006. This is two years ahead of schedule, as the tax was scheduled for elimination by 2008. This move will surely be welcomed by business as capital taxes are widely regarded as negative for investment.

Along with the accelerated elimination of the federal capital tax, the government is proposing to alter the federal capital tax on financial institutions. The tax is currently levied at a rate of 1% on taxable capital employed in Canada between $200 million and $300 million, and 1.25% on taxable capital in excess of $300 million. The budget will increase the threshold above which the tax begins to apply to $1 billion and to adopt a single tax rate of 1.25% over that threshold. These changes will apply as of July 1.

For small businesses, the budget proposes to increase the amount of small business income eligible for the 12% tax rate to $400,000 from $300,000 as of Jan. 1, 2007. It will also reduce the 12% rate applying to qualifying small business income to 11.5% in 2008 and 11% in 2009.