Canada's Government has said it can now boast the lowest effective tax rate on new business investment in the G7.
The claim is made in an update to the Government's report on Marginal Effective Tax Rates (METRs).
The report estimates how a new business investment is taxed, and takes into account federal, provincial, and territorial statutory corporate income tax rates, as well as other features of the corporate tax system such as investment tax credits and capital cost allowances.
According to the Government, Canada's average METR is the lowest in the G7 and below the average of the OECD. Canada's METR on new investments is 13.7% for 2019, the lowest since tracking began in 2000, when the rate was 44.1%.
Changes to the US corporate tax system, which included a cut to the headline corporate tax rate, have reduced but not eliminated the relative tax advantage for new investments in Canada, the Government says. Canada now has an overall tax rate significantly lower than that of the US, with an average tax advantage of 4.6 percentage points.
According to the Government, this advantage largely stems from the wider adoption of value-added taxes in Canada, as taxes paid on capital inputs are creditable to the business.
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Canada responded to the release of the US's comprehensive tax reform package, the Tax Cuts and Jobs Act of December 2017, with the release of new tax incentives for businesses in the 2018 Fall Economic Statement. This included the introduction of a measure to allow businesses to write off the full cost of machinery and equipment used for the manufacturing or processing of goods. It also allowed businesses to write off the full cost of specified clean energy equipment. Finally, the Government created a new Accelerated Investment Incentive, to allow businesses to write off a larger share of the cost of newly acquired assets in the year the investment is made.
Commenting on the release of the METR report, Canadian Finance Minister Bill Morneau said:
"This update spells out what many Canadians already know: that Canada is the best place in the world to do business. The tax incentives our Government introduced in 2018 have made sure Canada maintains its competitive advantage, even in the face of significant tax reductions south of the border."
"We know that good, well-paying jobs rely on business success, so in today's changing world it is essential that our Government continue to help businesses innovate, expand, grow, and confidently invest in Canada."
The Government says that, with the release of the new incentives, in certain industries, such as manufacturing and processing, the Canadian advantage is even more significant, with a METR of just 3.1%.
The International Monetary Fund now predicts that Canada will be the second-fastest-growing G7 economy this year and will tie for the fastest-growing G7 economy in 2020.