Bolstering tax competitiveness to stimulate investments

November 26, 2018

The economic update from the Government of Canada includes changes to the tax system to bolster the competitiveness of businesses. Here’s an overview of recent measures to bolster the city’s ability to attract and retain investments in leading-edge sectors.

Changes to the tax system to bolster competitiveness 

The Fall Economic Statement 2018 proposes immediate changes to the Canadian tax system in response to the U.S. Government’s Tax Cuts and Jobs Act of 2017, which is a set of complex federal tax reforms. Together, Canada’s tax measures could increase the expected rate of return from investment projects.

First, businesses could immediately write off the full cost (100%) of machinery and equipment used for the manufacturing or processing of goods. This measure will spur new investments, and support the adoption of advanced technologies and processes.

Second, businesses could immediately write off the full cost (100%) of specified clean energy equipment, to spur new investments and the adoption of advanced clean technologies.

Lastly, the Accelerated Investment Incentive came into force. This will allow businesses to write off a higher capital cost allowance in the first year, up to three times the allowance that would otherwise apply in the year when an asset is available for use. This incentive would allow businesses to recover the initial cost of their investment more quickly and shall apply to all capital investment, including buildings, patents and other intellectual properties.

This incentive is more advantageous than what the U.S. is offering, where the enhanced deduction is generally limited to goods with a short useful life and patents are excluded.

Moreover, thanks to Canadian regulation on how losses may be carried forward, businesses could reduce their taxable earnings from previous years or carry forward any losses created by these deductions in the first few years of the project. 

Towards export diversification and Canada’s openness to global trade 

The Government of Canada hopes to make the country the most globally connected economy and measures have been announced to foster trade. The government plans on investing $1.1 billion over the next six years in an Export Diversification Strategy that includes three key components:

  1. Investing in infrastructure to support trade.
  2. Investing to help Canadian businesses export and grow.
  3. Enhancing trade services for Canadian exporters.

Moreover, following the announcement of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) coming into force, subsequent to the United States-Mexico-Canada Agreement (USMCA), and the Canada-European Union Comprehensive Economic and Trade Agreement (CETA), Canada is now the only G7 country to have free-trade agreements with all the other G7 nations.

Canada also has preferred access to the markets of countries making up two-thirds of the world GDP, and that’s not even counting the countries where Canada has started negotiations and exploratory discussions.

image001

To learn more, access the full Economic Statement here: https://www.budget.gc.ca/fes-eea/2018/docs/statement-enonce/toc-tdm-en.html

Francis Bouchard
Director – Strategy and Economic Affairs

Leave a Reply