U.S. tax reform could be devastating to Canada. We need a strategy. And soon.
Source: CPA Canada
Author: Bruce Ball
For all the uncertainty swirling around Canada’s economic relationship with the United States, one critical issue has come into clear focus in recent months. The sharp cuts to the corporate tax rate south of the border, approved into law by President Donald Trump last December, have wiped out the advantage Canadian firms have enjoyed since Stephen Harper’s Conservative government began reducing corporate taxes almost a decade ago.
Canada’s average corporate income tax rate has been in the 26 to 27 per cent range since 2012, with an estimated 20 per cent marginal effective tax rate (i.e., incorporating deductions, credits, and other tax provisions). The cuts in the U.S. that came into effect for 2018 will bring their federal statutory rates down from 35 to 21 per cent, with a marginal effective rate estimated by economist Jack Mintz to be roughly 19 per cent. As Mintz observed earlier this year, “U.S. tax reform has changed everything.”
21%: New U.S. corporate tax rate, down 14 percentage points
What’s also been overlooked—and it’s going to be a big deal—is that the new U.S. corporate tax laws will allow most firms to write off 100 per cent of equipment purchases as in-year expenses for the next five years, with the rule phased out gradually thereafter.