Canada Proposes Business Tax Measures to Counter U.S. Tax Cuts and Jobs Act

Responding to calls to reduce business taxes in response to the U.S. Tax Cuts and Jobs Act (TCJA), Canada’s Minister of Finance has proposed three new business tax breaks in his fall economic statement to the House of Commons on 21 November 2018.  See additional background information on the proposals.

The TCJA reduced the U.S. corporate income tax rate from 35% to 21%, and also enacted other provisions which will benefit U.S. businesses. Canada has considered reducing its own corporate tax rate, but concluded that the revenue cost would be unacceptable.

Instead, the government is proposing incentives that, if enacted, it says will reduce the effective tax rate on new business investment from 17% to 13.8%.  The new incentives will allow businesses to write off larger portions of the cost of newly acquired business assets in the year the cost is incurred.

The three incentives are:

  • Allow businesses to immediately write off the full cost of machinery and equipment used for manufacturing or processing goods
  • Allow businesses to immediately write off the full cost of specified clean energy equipment
  • An Accelerate Investment Incentive, which would let businesses of all sizes and in all sectors write off larger shares of newly acquired assets

The proposals are intended to support and encourage business investment in Canada, and preserve the country’s status as a low-cost place to do business.

The measures, however, do not go as far as the recommendations in a 3 October 2018 report from the Chartered Professional Accountants of Canada, which urged the government to review and reform the entire tax system, or a report from PwC commissioned by the Business Council of Canada.

How This Impacts Mobility

Worldwide ERC® members incorporated in Canada, or with businesses there, could benefit from these changes to the Canadian corporate tax regime, which would save money and encourage movement of business and employees to that country.

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