Canada To Improve Group Taxation

by Mike Godfrey, Tax-News, Washington

29 November 2010

Canada’s Minister of Finance, Jim Flaherty, has launched public consultations on the taxation of corporate groups to explore whether changes to the tax system can be made to improve its efficiency and to support economic growth.

“Our government has already taken significant steps to enhance the competitiveness of the tax system for Canadian businesses,” said Minister Flaherty. “We are committed to continuing on this track, including by examining whether structural changes could improve the functioning of the tax system.”

The government has heard various concerns from the business community and the provinces regarding the current approach to utilizing tax losses within corporate groups. The consultations will allow for further exploration of potential changes, such as a more formalized system of loss transfers or some form of consolidated reporting.

To help guide the consultations, the government is releasing a paper entitled 'The Taxation of Corporate Groups.' A new system for the taxation of corporate groups would constitute a fundamental change to the Canadian corporate tax system. The paper highlights important issues where stakeholder feedback will be helpful in determining what type of group taxation system the government should consider.

The federal government is also consulting with the provinces on the taxation of corporate groups. He noted that the government will carefully consider any potential revenue impacts for both the federal and provincial governments, and the impact that a new system of group taxation could have on federal-provincial tax arrangements.

Flaherty said that the challenge lies in satisfying the interests of both levels of government, and the business community, which is why “stakeholders are encouraged to recognize competing interests and provide input about their most important priorities.”

If as a result of this consultation exercise a new system of group taxation should be proposed, stakeholders will be consulted again on the specific design of the new system.

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