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No New Taxes In Budget For Canadians

by Mike Godfrey,, Washington

30 March 2012

The Canadian government has left tax rates on hold for another year in the 2012 Budget, announced by Finance Minister Jim Flaherty on March 29.

Delivering his Budget speech, Flaherty again stressed that the government's plan focuses on keeping taxes low. He slammed those critics calling for an increase in taxes and government spending, arguing that "these short-sighted, irresponsible, and dangerous policies would kill jobs, impose crushing deficits, and cripple our economy. They would squander Canada’s advantage. Eventually they would make our social programs unsustainable. These policies would turn us away from long-term prosperity, down a path of long-term decline."

Instead, Flaherty said, the government will remain steadfast, will not raise taxes, and will maintain its approach to the economy. Indeed, the Budget steers away from any major new tax-related initiatives, sticking largely to minor administrative reforms.

Business income tax measures include:

  • Expanding the scope of the accelerated capital cost allowance which provides a 50% per year allowance on a declining balance basis for investment in specified clean energy generation and conservation equipment;
  • Phasing out the 10% corporate tax credit for pre-production mining expenditures;
  • Phasing out the Atlantic Investment Tax Credit, a 10% credit for qualifying acquisitions of new buildings, machinery and equipment in Atlantic provinces, for oil and gas and mining activities over a four-year period;
  • Reducing the general 20% Scientific Research and Experimental Development Program (SR&ED) investment tax credit rate applicable to SR&ED qualified expenditure pool balances at the end of a taxation year to 15%, and excluding expenditures of a capital nature from eligibility for SR&ED deductions and investment tax credits; and
  • Legislative changes to prevent the use of Partnerships for the purposes of tax avoidance;

The Budget also takes forward a number of recommendations of the Advisory Panel on International Taxation, such as improving the "equity and fairness" of the thin capitalization rules by reducing the debt-to-equity ratio from 2-to-1 to 1.5-to-1 and extending the thin capitalization rules to debts owed by partnerships of which a Canadian-resident corporation is a member; recharacterizing disallowed interest expenses as dividends for non-resident withholding tax purposes; and improving the tax treatment of foreign affiliate loans.

Budget 2012 also proposes to extend eligibility for the mineral exploration tax credit for one year, to flow-through share agreements entered into on or before March 31, 2013.

TAGS: tax | small business | economics | business | holding company | tax incentives | mining | fiscal policy | budget | corporation tax | oil and gas | group taxation | controlled foreign corporations (CFC) | Canada

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