Federal government announces corporate tax cuts

The Canadian federal government has announced several corporate tax cuts that will offer tax relief for Canadian businesses in the long term.

The government’s economic statement, released last Tuesday, proposed broad-based tax relief of almost $60 billion over this and the next five fiscal years for individuals, families and businesses.

Among them, the statement introduced a new tax reduction initiative that will reduce the general federal corporate income tax rate to 15 per cent by 2012. The general federal corporate income tax currently stands at 22.1 per cent.

The general corporate income tax rate will decline by 7.12 percentage points between 2007 and 2012. According to the government, the reduction will give Canada the lowest overall tax rate on new business investment among the G7 countries by 2011, and the lowest statutory tax rate in the G7 by 2012.

The government also noted that it was seeking the collaboration of the provinces and territories to reach a 25 per cent combined federal-provincial-territorial statutory corporate income tax rate.

In addition, the government plans to accelerate its plans to reduce the tax rate to 11 per cent for small businesses. The rate will now be reduced by January 1, 2008 instead of 2009.

The Canadian Manufacturers and Exporters group welcomed the news of corporate tax cuts that focus on the long-term needs of Canadian businesses. However, CME said the economic statement did not address the short-term problems in the manufacturing sector.

“The reduction in the federal corporate tax rate is an extremely important step in sustaining Canada’s ability to retain and attract business investment. It keeps us in the game as countries around the globe are lowering their tax rates to do the same,” said CME president Jayson Myers. “However, it’s disappointing the government didn’t use this opportunity to also extend the window for the two-year write-off for investment in manufacturing technology.”

The CME has been lobbying the government to extend the Capital Cost Allowance (CCA) in order to address the short-term cash flow problems faced by Canadian manufacturers. An extended CCA would allow Canadian manufacturers to invest in technology and remain competitive.

“We’re pleased the Finance minister acknowledged the competitive challenges facing manufacturers,” said Myers. “[Finance Minister] Jim Flaherty said he ‘isn’t done yet’ — we aren’t either. We will continue to urge the federal government to take the important step of extending CCA in the next budget — the health of our manufacturing sector is on the line.”