Flaherty Outlines Progress Toward Enhancing Canadian Tax Regime

by Mike Godfrey, Tax-News.com, Washington

06 January 2010

Jim Flaherty, Canada's Minister of Finance, in a January 2 statement highlighted the fact that in 2010 Canada will have the lowest overall tax rate on new business investment in the Group of Seven (G7) industrialized countries.

"As a result of federal and provincial business tax changes and bold tax reductions, Canada has created an internationally competitive tax climate for new business investment,” Flaherty stated.

"Early actions taken by our government, as well as the measures included in Canada’s Economic Action Plan, are positioning Canadian businesses to emerge stronger and better equipped to compete globally as the economy recovers," he added.

In addition to the lowest overall tax rate on new business investment in the G7, he reported that Canada is on track to having the lowest statutory corporate income tax rate in the G7 by 2012.

According to Flaherty, Canada will also have an overall tax rate on new business investment that is lower than the average of the Organisation for Economic Co-operation and Development by 2012.

Key tax measures to support competitiveness include:

• A cut in the corporate income tax rate from 22.12% (including the corporate surtax) in 2007 to 15% in 2012. These tax reductions will include the elimination of the corporate surtax in 2008 for all corporations and a reduction in the federal general corporate income tax rate to 18% as of January 1, 2010.
• A reduction of the federal income tax rate applying to qualifying small business income to 11% in 2008, and an increase in the amount of income eligible for this rate to CAD500,000 in 2009.
• Alignment of capital cost allowance rates for a number of assets to better reflect their useful life. According to the government, this both reduces the tax burden on investment and ensures neutral tax treatment of different capital assets, encouraging investment to flow to its most productive uses.
• Elimination in 2006 of the federal capital tax, and the introduction in 2007 of a temporary financial incentive to encourage provinces to eliminate their general capital taxes and to eliminate or replace their capital taxes on financial institutions with a minimum tax. All provincial general capital taxes will be eliminated by 2012.

"The competitiveness of our business tax system encourages new investment in Canada, including direct investment from abroad," Flaherty explained.

"A competitive business tax system is essential for encouraging new investment, growth and job creation," he concluded.

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