What serves as the backbone of Canada’s economy, contributing to nearly half of its gross domestic product (GDP)? The answer might surprise you. Turns out, small and medium-sized enterprises (SMEs) are the unsung heroes of the Canadian economic narrative. 

From cozy corner shops to cutting-edge tech startups, SMEs play more than just a participating role in Canada’s economy — they’re its driving force. This article takes an in-depth look at the defining qualities of SMEs in Canada, their importance, industry specifics, and the government incentives available to help support their continued success.

SME meaning: What does SME stand for?

SMEs in Canada are defined by their unique employment footprint in the economy:

• Micro-businesses: Micro-businesses employ between 1 and 4 people.
• Small businesses: Small businesses in Canada are those with 5 to 99 employees. 
• Medium-sized businesses: Medium-sized businesses employ between 100 and 499 people. 

Building on this small and medium-sized enterprise (SME) definition, the numbers reveal the significance of SMEs in Canada: The 1.19 million businesses classified as small businesses as of December 2022 represented 97.8% of all employer businesses. And medium-sized businesses, though smaller in number (23,395), accounted for another 1.9% of employer businesses. 

The importance of SMEs in Canada: A statistical overview

The role played by SMEs within the Canadian economy can’t be overstated. Microenterprises and small businesses make up the economy’s core, with microenterprises constituting 55.3% of all businesses. Add in businesses with up to 9 employees, and this number grows to an impressive 73.8%, highlighting the impact these smaller entities have on the economic landscape. 

SMEs’ role in Canada’s labour market paints an equally impressive picture: In the year 2022 alone, micro-businesses and small businesses combined (representing businesses employing between 1 and 99 employees) employed a total of 10.7 million individuals, accounting for 63% of the nation’s entire workforce. 

Looking beyond the employment arena, a closer look at the contribution made by SMEs provides an even clearer view of their economic influence. Between 2016 and 2020, for example, small businesses alone added 35% to Canada’s GDP, with medium-sized businesses contributing an additional 13.2%. And SMEs’ impact extends into global markets, contributing 40.8% of Canada’s 2022 exports of goods.

These figures speak volumes about the critical importance of SMEs in Canada’s overall economic landscape. Economic strength doesn’t come solely from large corporations. From creating jobs to adding value to the GDP, SMEs are a clear driving force within Canada’s economy.

SME dynamics across industries

SMEs also command a significant presence across various industries in Canada, making up more than 99% of all enterprises in the following sectors:

• Agriculture, forestry, fishing, and hunting
• Real estate and rental and leasing
• Other services (except public administration)

Within this diverse industrial landscape, the SME sector experiences an ebb and flow of new ventures and closures. This cycle, known as creative destruction, saw an average of 100,475 small businesses start up each year from 2016 to 2020, and a near-equivalent number of 96,548 closures — an ongoing, dynamic process that demonstrates the role SMEs play in fostering innovation, providing employment opportunities, and maintaining the competitiveness of Canada’s economy. 

Government incentives for Canadian SMEs: Tax, funding, and beyond

SMEs in Canada have access to a wide array of government incentives designed to support their continued growth and innovation. From tax credits, grants, and other funding opportunities to specialized programs for international expansion, wage subsidies, and access to expert advice, these initiatives combine to form a substantial support framework for Canadian SMEs. 

Understanding tax credits for SMEs

A tax credit is a valuable tax incentive that directly reduces the amount of tax your business owes. Unlike tax deductions, which work by reducing the amount of taxable income, tax credits lower the tax owing, dollar for dollar, making them an effective tool for managing your business’s tax liabilities. 

SMEs can take advantage of a variety of federal and provincial/territorial tax credits designed to support their growth, innovation, and sustainability. Federal tax credits, for example, include investment tax credits such as the Scientific Research and Experimental Development (SR&ED) tax incentives, which encourage businesses to engage in research and development initiatives within Canada.

At the provincial and territorial level, the tax credits available vary widely but are generally designed to encourage economic activities that stimulate investment, employment, and green initiatives within the region. 

Collectively, these federal and provincial/territorial tax incentives provide SMEs with a broad spectrum of support tailored to meet diverse SME needs across industries. 

Exploring SME funding incentives

Securing the right funding can be a game-changer for your SME — which means navigating the financial landscape of government funding incentives can play a pivotal role. Options range from grants, which provide critical financial support without the obligation of repayment, to loans that offer flexible financing solutions to assist you in pursuing further opportunities. 

Grants offer an important funding mechanism for your SME, giving you access to financial assistance spanning a broad array of activities and sectors. Whether you want to push the boundaries of innovation, break into new markets, or improve your business’s sustainability practices, grants provide non-repayable financial support that can make a significant difference in the viability and success of your SME’s projects and initiatives. 

On the loan front, your SME has access to valuable resources such as the loan programs offered by the Business Development Bank of Canada. These provide a range of options from working capital to growth funding, all designed with the needs of small businesses in mind. And the Canada Small Business Financing Program’s government-backed loan guarantees reduce the risks for lenders, making it easier for SMEs to obtain loans to finance nearly every aspect of business development. 

Other government incentives for SMEs

The support framework for Canadian SMEs isn’t limited to financial assistance through tax credits and loans. To explore the full array of support available, check out the Business Benefits Finder. On this comprehensive portal, you can easily navigate through and identify the resources, programs, and incentives best suited to your business’s unique needs. And if you need this information on the go, you can get mobile access with the Canada Business App.

Empower your SME journey

As an SME, you face unique financial challenges. QuickBooks is here to help, with solutions tailored to assist you in managing your finances effortlessly. Explore how QuickBooks Online can transform your approach to tax credits and more, supporting your business’s growth every step of the way.

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