On January 25th the Canadian Labour Congress released a new study on the tax liabilities faced by Canadian companies, claiming that corporate income tax collections are making up a decreasing amount of the government’s cumulative revenues.

According to the report, in 2010 Canadian businesses saw Corporate Tax Freedom day (CTF) fall on February 1st, and in 2012 the date is expected to move into late January. The CTF date is a hypothetical measure which indicates how many days of the year a company will need to work before they can cover their annual tax obligations in full. The CTF date has fallen earlier every year since 2000.

The move in the CTF date is being attributed to the series of cuts to the corporate income tax rate in Canada. At the start of the year 2000 the tax rate stood at 28 percent, and at the start of 2012 the rate was already down to 15 percent, with many businesses taking advantage of a constantly updated system of tax breaks and allowances.

After taking into account the provincial tax rates faced by businesses in Canada, as of January 1st 2012 the effective tax rate faced by companies is estimated to be below 24 percent.

The authors of the report suggested that each 1 percent decrease in the corporate tax rate results in a CAD 2 billion reduction in collections of corporate taxes in Canada.

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In an effort to woo a greater numbers of international investors to Canada, the Finance Minister Jim Flaherty gave a speech in New York on June 15th, espousing the country’s economic and taxation benefits.

According to the Minister, Canada is the lowest taxed jurisdiction for businesses among all of the G7 nations. He went on to say that the government of Canada has lowered its federal corporate tax rate, and eliminated capital gains taxes with the explicit aim of creating a beneficial tax situation for multinational businesses which operate from Canada. The federal government is also strongly encouraging provincial authorities to concurrently lower their business tax rates. Summarizing the primary goals of the government’s economic vision, he said that before the end of 2013 most business income in Canada will be taxed at a combined federal-provincial rate of 25 per cent.

The Minister revealed the government’s plans for changes to the tax system, saying that Canada intends to be the first “tariff-free zone for industrial manufacturers in the G-20”, and is also investigating and actively pursuing tax measures which will boost job growth and economic prosperity.

In an effort to assure business operators that Canada’s advantageous tax situation will be maintained in the foreseeable future, he drew attention to the country’s performance through the period of financial turmoil of recent years. He said that Canada is now expected to be one of only two G7 nations to see a budgetary surplus by 2016, and the country saw no major banking sector collapses, unlike some of its major trading partners.

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Following the Canadian general election on May 2nd, Stephen Harper has been confirmed as the Prime Minister of the country for the third time, and as the leader of the now majority ruling Conservative Party. Holding the majority position in parliament is a new advantageous reality for the Conservatives, and the country’s new political make-up is set to lead to several changes to the tax system, and a more business orientate policy outlook for the government.

The Conservative Party has been a long-time supporter of lowering the country’s corporate tax rate, but its efforts were repeatedly hampered by opposition parties. Following the announcement of the election results, Steven Harper suggested that with the party’s new majority standing, the lowered tax rate could be instated soon. It is expected that any such move will see the rate dropped from 16.5 percent to 15 percent, with the intention of allowing Canadian companies to remain competitive on the international market.

The Prime Minister has also promised to instate several personal and family tax breaks, starting with an effective lowering of overall tax liabilities for couples with children. However, such measure will be delayed until the government is able to adequately address its current budget deficit.

The Canadian Conservative Party-led government is also looking set to increase support for the country’s energy and resource extraction sectors. In a speech made in Calgary on May 3rd Steven Harper suggested that transport and energy companies operating in western Canada will greatly benefit from the Party’s business policies, paving way for potential energy export expansions into Asia. He added that there is no current plans for the Canadian government to instate a carbon emissions trading scheme, or cut back on the government subsidies and tax breaks currently enjoyed by the energy sector, as was campaigned for by opposition parties. The currently offered government subsidies amount to approximately CAD 2.2 billion per annum.

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Heated debates are currently going on across Canada, regarding the possibility of a “fat tax” to positively influence national eating habits. Currently the discussions revolves around two primary ideas, raising levies on unhealthy foods, and overhauling the country’s system of taxes on food items.

In Canada some foodstuffs are exempt from Goods and Service Tax (GST) based on several criteria, such as packaging, quantity sold and purchase location. Bill Jeffery, director of the Centre for Science in the Public Interest, claimed that there is currently little coherence between ideal healthy eating standards and Canada’s tax treatment of foods. He noted that baked goods such as doughnuts could be exempt from GST, while fresh salads and fruits are not. Bill Jeffrey stated that the situation needs to be remedied with tax exemptions on all fruits and vegetables. The suggestion has received recent support and is being actively endorsed by the Canadian Medical Association, Centre for Science in the Public Interest and Weight Coalition of Quebec.

A separate call is also being raised for higher taxes on unhealthy foods. The move is being supported by the World Health Organization, which called for all developed nations to place heavier taxes on fattening foods, in a report released in August 2010. It was suggested that increased prices on foods that are perceived as being unhealthy would alter Canadians’ purchasing behaviors. John Turnbull, president of the Canadian Medical Association, commented on the proposal last week, saying that the revenues realized from the extra tax measures could be used to fund projects and initiatives which would result in lowered retail prices for fruits and vegetables. Alternatively, he proposed that the raised money could be used to start childhood exercise programs or public education campaigns.

Approximately 59 percent of Canadians are regarded as being medically overweight or obese. National expenditures on problems associated with weight gain were estimated to be CAD 6 billion in the year 2006.

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During a press conference in Oshawa, Ontario on January 26th, the Finance Minister of Canada Jim Flaherty discussed potential changes to Canada’s corporate tax rates, and revealed the government’s intention to instate personal income and corporate income tax rate cuts in the near future. Explaining the need for lowered corporate rates he said, “If we want more jobs, higher wages, an improved standard of living for all of us, Canada needs to be an attractive place for job-creators to do business and invest.”

As of January 2011 the federal corporate tax rate has stood at 16.5 percent, and the Minister has expressed the government’s intentions to see it lowered to 15 percent in January 2012. He added that he is pleased to see several provinces also lowering their corporate tax rate in line with the federal rate. Elaborated, the Minister said, “What does that mean for our country? It means that as of 2012-13, we will have a brand in our country. A very attractive brand of a combined 25 per cent business tax rate for most of the country.”

For the planned 15 percent corporate tax rate to be instated, the intentions must be approved through the Conservative Party’s national budget, which is scheduled to be released in March. However the Conservatives will need to support of at least one of the three major opposition parties. If all three parties opt not to support the budget, legislation requires that an election be called.

The Liberal Party of Canada, the primary opposition party in parliament, has come forward arguing strongly against the latest tax cuts and any potential cuts in the near future. Leader of the Liberal Party Michael Ignatieff gave a speech to Liberal Party MPs on January 25th saying that he will resolutely oppose tax cuts, and instead call for job creation through higher investments in education. The Liberal leader added that by rolling back the latest corporate tax rate changes, the government would be able to fund extra day-care facilities for children and homecare for the elderly. He also hinted that the Liberal Party would investigate the option of tax system changes that would specifically benefit small businesses.

Both, the Liberal and Conservative parties, are now set to escalate their campaigns to recruit the support of the two remaining primary opposition parties, while country prepares for the possibility of an election as early as the second half of 2011.

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