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Reforming Canada’s corporate tax system would help companies grow and create jobs, report says

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Date: September 16, 2015

Related Issues Innovation and Competitiveness, Macroeconomic and Fiscal

Eliminating distortions in Canada’s business tax system would encourage small firms to grow, promote job creation and strengthen Canada’s ability to compete in the global economy, a new report says.

The report, by world-renowned tax policy expert Jack Mintz, finds that Canada’s current business tax system contains significant imbalances that favour some companies over others and discourage entrepreneurs from pursuing growth.

By reforming the corporate tax system to make it more neutral, governments could give themselves room to lower the general business tax rate without reducing total tax revenues, the paper says.

The Canadian Council of Chief Executives commissioned the report to help guide its thinking on tax policy and Canada’s global competitiveness. The CEO Council is a not-for-profit, non-partisan organization composed of the chief executives and entrepreneurs of Canada’s leading enterprises. Copies of Dr. Mintz’s report are available here.

“Lower corporate taxes should go hand-in-hand with a drive to make the tax system more neutral among business activities and among small and large firms,” argues Dr. Mintz, who is currently President’s Fellow at the University of Calgary’s School of Public Policy. “Tax neutrality puts the decisions on which projects offer the best return into the hands of business rather than governments, which are too often swayed by non-economic considerations.”

Under the current tax system, a company with less than $500,000 in annual active business income pays a federal tax rate of 11 per cent. (The most recent federal budget proposed lowering the rate to nine per cent by 2019.) Companies with incomes greater than $500,000 pay the general corporate tax rate of 15 per cent. In addition, each province imposes its own level of corporate tax based on business size. Many economists argue that giving preferential tax treatment to small businesses discourages those companies from trying to grow.

Among other reforms, Dr. Mintz proposes:

  • Narrowing the gap between the small business and general corporate tax rates;
  •  Reducing tax breaks that only apply to some industries;
  • Applying uniform corporate tax rates across the country;
  • Harmonizing retail sales tax rates with the GST in provinces that have not already done so.

Such measures would reduce the complexity of the corporate tax system while enhancing its fairness and effectiveness, mirroring reforms already enacted in countries such as the United Kingdom, Finland and Denmark.

Jack Mintz is one of Canada’s foremost tax experts. His career of tax analysis, policy advice and international benchmarking has spanned more than three decades. Earlier this year he was appointed a Member of the Order of Canada.

Founded in 1976, the CEO Council engages in public policy research, consultation and advocacy on behalf of Canada’s business leaders. Its members head companies that collectively administer $7.5 trillion in assets, employ more than 1.4 million men and women and are responsible for most of Canada’s exports, private-sector research and development and workplace training.

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