Key Takeaways
- Business closures have exceeded new business starts for six straight quarters, with exit rates reaching 5.6% in Q2 2025 while entry rates fell to 4.8% in Q4 2025.
- The Canadian Federation of Independent Business (CFIB) urges governments to act now to reverse the “entrepreneurial drought” and restore small‑business confidence.
- Three priority reform areas are recommended: lowering the cost of doing business, cutting red tape and internal trade barriers, and addressing labour‑market challenges and business succession.
- Specific measures include reducing the federal small‑business corporate tax rate from 9% to 6%, permanently lowering provincial rates to 0% by 2030, raising tax thresholds to at least $700,000 and indexing them to inflation, adopting a “2‑for‑1” rule for regulations, expanding mutual recognition for food and alcohol, and allowing tax deferral on capital gains for intra‑family business transfers.
- CFIB leaders stress that upcoming federal spring economic statements provide a timely opportunity to implement these reforms and put small businesses first.
Overview of the Entrepreneurial Drought
Canada’s economic foundation is weakening as business closures consistently outpace new business formations. According to the Canadian Federation of Independent Business (CFIB), this trend has persisted for six consecutive quarters, signalling a deepening entrepreneurial drought that threatens the nation’s long‑term competitiveness. The organization’s two‑part report, Canada’s Entrepreneurial Drought, documents the shrinking business landscape and proposes concrete policy actions to reverse it. CFIB argues that governments have historically favoured large enterprises while neglecting the needs of small firms, a bias that must be corrected if Canada is to sustain economic growth and productivity.
Evidence of the Shrinking Business Landscape
The data underscore the severity of the situation. In the second quarter of 2025, the business exit rate climbed to 5.6 %, while the entry rate fell to 4.8 % in the fourth quarter of 2025—figures that represent some of the highest closure rates and weakest startup activity observed outside the pandemic period. These statistics, drawn from CFIB’s Canada’s Entrepreneurial Drought, Part 1: The Shrinking Business Landscape, confirm that more Canadian firms are shutting down than opening, eroding the country’s entrepreneurial base and reducing avenues for innovation and job creation.
Priority Area One: Reducing the Cost of Doing Business
To stimulate entrepreneurship, CFIB recommends a series of fiscal measures aimed at lowering the financial burden on small enterprises. The federal small‑business corporate tax rate (SBCTR) should be cut from the current 9 % to 6 %, while provincial governments are urged to permanently lower their SBCTRs to 0 % by 2030. Additionally, the SBCTR threshold should be raised to at least $700,000 and indexed to inflation, ensuring that more businesses benefit from the lower rate. Improving access to affordable financing and guaranteeing that government programs and procurement processes are truly accessible to small firms are also essential components of this cost‑reduction strategy.
Priority Area Two: Cutting Red Tape and Internal Trade Barriers
Regulatory excess remains a significant deterrent to business formation and expansion. CFIB calls for governments to measure and publicly report the total regulatory burden faced by businesses, creating transparency that enables targeted reform. Implementing a “2‑for‑1” rule—for every new regulation introduced, two existing ones must be eliminated—would systematically red tape. Furthermore, internal trade should be streamlined by expanding the Canadian Mutual Recognition Agreement beyond its current scope to include food and alcohol, ensuring consistent and transparent application across provinces with minimal carve‑outs. These steps would reduce compliance costs and make it easier for firms to operate nationwide.
Priority Area Three: Addressing Labour Market Challenges and Business Succession
A skilled and adaptable workforce is vital for small‑business success. CFIB proposes enhancing workforce quality through targeted training incentives and stronger partnerships between businesses and educational institutions. Maintaining, protecting, and defending the Temporary Foreign Worker Program while consulting the business community ahead of any reforms will help firms meet labour shortages. To encourage entrepreneurship among younger Canadians, awareness campaigns should highlight the advantages of purchasing an existing business. Finally, allowing small corporations to defer tax on capital gains when transferring a business to the owner’s children would facilitate smoother succession, preserving family‑owned enterprises and sustaining local economic activity.
Responses from CFIB Leaders and Call to Action
CFIB officials emphasize that the entrepreneurial drought will not resolve itself without decisive government action. Michelle Auger, CFIB director of trade and marketplace competitiveness, noted that the upcoming federal spring economic statement presents a timely opportunity to address the crisis and restore small‑business confidence. She criticized years of policy focus on big business while small firms were largely ignored. Brianna Solberg, CFIB director for the Prairies and the North, warned that without policies that inspire confidence, Canada’s economic strength, competitiveness, and productivity growth will suffer. Both leaders urged all levels of government to place small businesses at the forefront of their agendas and to implement the recommended reforms promptly.
About the Canadian Federation of Independent Business
The Canadian Federation of Independent Business (CFIB) is Canada’s largest association of small and medium‑sized enterprises, representing 103,000 members across every industry and region. CFIB is dedicated to improving business owners’ prospects for success by advocating for policy change at all government levels, providing expert advice and practical tools, and negotiating exclusive savings for its members. More information about CFIB’s work and the entrepreneurial drought report can be found at cfib.ca/drought.