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‘The Trump Shadow: The New Urgency of Business Tax Reform in Canada’ – Conference Board of Canada


U.S. President Donald Trump smiles after announcing a permit for Canadian Keystone XL oil pipeline while TransCanada Chief Executive Officer Russell Girling (L), U.S. Commerce Secretary Wilbur Ross (C) and Energy Secretary Rick Perry (R) stand beside him in the Oval Office of the White House in Washington, U.S., March 24, 2017. REUTERS/Kevin Lamarque

Canada’s business investment has been weak for a number of years

By Natasha Jamieson, Conference Board of Canada

Amid the shadow of tax reform legislation in the United States and the need to boost business investment at home, Canada should look to reduce the tax burden on businesses of all sizes, according to a new Conference Board of Canada report.

“Canada’s tax policies as they pertain to business are coming under the microscope, and the pressure will get even more intense if the United States is able to reduce corporate and personal tax rates,” said Craig Alexander, senior VP and chief economist, The Conference Board of Canada.

Canadian governments have significantly lowered corporate income tax rates since 2000, but combined federal-provincial rates are still above the average of 35 Organisation for Economic Cooperation and Development countries.

The U.S. currently has a higher federal corporate income tax rate, but Canada will be hard-pressed to maintain competitiveness with the U.S. if the Trump Administration and Congress settle on a reform package.


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Canada’s business investment has been weak for a number of years, and Conference Board research regularly finds that tax policies are a factor in investment decisions.

Without a substantial improvement in business investment, the Canadian economy is unlikely to see annual growth above 2 per cent throughout the medium term.

The report, The Trump Shadow: The New Urgency of Business Tax Reform in Canada, summarizes approaches to lower the business tax burden in Canada. Governments can:

  • Lower corporate income tax rates and reduce the gap between the general corporate income tax and the small business income tax, while trimming the number of tax expenditures permitted;
  • Continue to implement carbon taxes and use the revenue to reduce other taxes that directly affect investment decisions;
  • Limit the use of payroll taxes to raise government revenues, since payroll taxes increase the cost of employing workers;
  • Harmonize provincial retail sales taxes with the federal Goods and Services Tax in jurisdictions that have not already done so;
  • Reform specific tax measures that influence business investment decisions, including: increasing the capital cost allowance rate for investment in capital; reforming or eliminating the dividend withholding tax; and making the scientific research and experimental development (SR&ED) tax credit refundable for firms of all sizes.

Policy-makers can consider these potential changes individually or as a combination of measures in a broader package.

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Posted in: Canada

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