Canadian Government Releases Overview Of Fiscal Changes

by Mike Godfrey, Tax-News.com, Washington

30 December 2009

The Canadian Department of Finance has released its 2009 Tax Expenditures and Evaluations report. The report provides estimates and projections of the revenue impacts of all special federal tax measures introduced during 2009.

Changes introduced during the year detailed in the report include:

  • Personal income tax relief, particularly for low- and middle-income Canadians, through increases in the amount of income that all Canadians can earn without paying federal taxes or before being subject to higher tax rates, and an increase in the Age Credit amount;
  • The effective doubling of the Working Income Tax Benefit, which will make work more rewarding for about 1.5 million low-income Canadians and encourage them to find and retain a job;
  • The temporary Home Renovation Tax Credit, the First-Time Home Buyers' Tax Credit, and an enhancement to the Home Buyers' Plan;
  • Additional tax relief for small businesses through an increase to CAD500,000 (USD481,335) from CAD400,000 in the amount of small business income eligible for the reduced federal income tax rate of 11%, along with a corresponding increase in the taxable income phase-out range for spending eligible for the enhanced Scientific Research and Experimental Development Investment Tax Credit.

The report also included an evaluation report that compares tax assistance for investment in research and development (R&D) in the 30 member countries of the Organization for Economic Cooperation and Development and six key emerging and transition economies. All countries in the comparison group provide tax assistance for investment in R&D in the form of generous tax depreciation allowances, which in many cases exceed the amount invested, and a third of the countries provide investment tax credits (ITCs). Eight countries, including Canada, provide enhanced assistance to small firms for investment in R&D, primarily through higher ITC rates. Taking into consideration both large and small firms, Canada has the third most generous R&D tax regime in the comparison group, after France and Spain, the report revealed.

The release of the report coincides with that of the Fiscal Monitor, released mid-December, which showed that state debt has increased significantly year-on-year, which, according to the government, reflects the impact of the weaker economy, alongside the aforementioned measures.

In October 2009, the government recorded a budget deficit of CAD3.3bn (USD3.17bn), up from CAD0.6bn in October 2008.

The fiscal monitor shows that revenues are down CAD1.8bn year-on-year, reflecting declines in income tax revenues, excise taxes and duties, and other revenues, while government expenditure increased by CAD1bn in the period October 2008 through to October 2009 due to higher Employment Insurance (EI) benefit payments and higher operating expenses of departments and agencies.

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