Flaherty Sets Out 2012 Canadian Tax Reliefs

by Mike Godfrey, Tax-News.com, Washington

04 January 2012

Jim Flaherty, Canadian Finance Minister, in a speech on December 29, 2011, highlighted tax reliefs coming into effect in 2012.

“Creating jobs and growth in our economy is our top priority,” said Minister Flaherty. “Together with the provinces and territories, we are creating the conditions for businesses to successfully compete in the global economy by investing in Canada and creating jobs and growth for all Canadians. Through our Government’s low-tax plan for jobs and growth, we are continuing to send the message that Canada is open for business and the best place to invest.”

In 2007, the Canadian parliament passed a bold tax reduction plan, helping to brand Canada as a low-tax jurisdiction for business investment. The government also encouraged the provinces and territories to collaborate in supporting investment, job creation and growth in all sectors of the Canadian economy by establishing the goal of a 25% combined federal-provincial corporate income tax rate.

The final stage of the government's incremental reduction in the federal corporate income tax rate is effective from January 1, 2012. These substantial tax reductions have lowered the federal general corporate income tax rate from 22.12% in 2007 (including the corporate surtax that was eliminated in 2008) to 15% in 2012. With British Columbia, Ontario and New Brunswick having reduced or committed to reduce their rates to 10%, and with Alberta already at 10%, most of the corporate income in Canada will be taxed at 25% when the final stage of Ontario’s rate reduction takes effect on July 1, 2013.

Also in 2012, the last of the provincial general capital taxes will be eliminated. This follows the 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.

Since 2006, the government has undertaken several measures designed to contribute to creating jobs and economic growth such as:

• Providing a temporary hiring credit for small business to encourage additional hiring by this vital sector.
• Reducing the federal income tax rate that applies to qualifying small business income to 11% in 2008, and increasing the amount of income eligible for this rate to CAN500,000 in 2009.
• Supporting the manufacturing sector by introducing a temporary accelerated capital cost allowance rate for investment in manufacturing or processing machinery and equipment and extending it until the end of 2013.
• Eliminating tariffs on imported machinery and equipment and manufacturing inputs to make Canada a tariff-free zone for industrial manufacturers by 2015.
• Improving the ability of Canadian businesses to attract foreign venture capital by narrowing the definition of taxable Canadian property, thereby eliminating the need for tax reporting under section 116 of the Income Tax Act for many investments.

As a result of these and other tax changes, Canada now has an overall tax rate on new business investment that is substantially lower than in any other G7 country and below the average of the member countries of the Organisation for Economic Co-operation and Development.

Recommended