Insights

The Canadian parliament passed a tax reduction plan in 2007 to gradually reduce income tax rates to boost the country’s business investment. The reduction of federal rates, combined with the encouraged reduction for rates in provinces and territories, was meant to support business investment, job creation and growth in all sectors of the Canadian economy and brand Canada as a low-tax jurisdiction.

The final stage of the federal rate reduction is effective on January 1, 2012, when the rate goes to a low of 15%, down from 22.12% in 2007. Combined with reductions in most provincial rates to 10% (Ontario, British Columbia, New Brunswick and Alberta), most corporate income in Canada will be taxed at 25% by July 1, 2013. Also in 2012, the last of the provincial capital taxes will be eliminated for nonfinancial institutions.

Additional measures to stimulate growth and create jobs include an accelerated capital cost allowance rate for investment in manufacturing or processing machinery and equipment, which was extended until the end of 2013; eliminating tariffs on imported machinery and equipment and manufacturing inputs; reducing federal income tax rate for qualifying small business income to 11% and increasing the eligibility threshold to qualify; and providing hiring credits for small business.

Schneider Downs & Co. reminds those preparing income tax provisions to consider applicable rate reductions when computing deferred income taxes.

As a result of these and other tax changes, Canada now has a combined tax rate that is substantially lower than any other G7 country and below the average of the OECD member countries. Jim Flaherty, Canadian Finance Minister, recently remarked, “…Canada is open for business and the best place to invest.” The U.S. congress should take note.

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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