The federal budget aims to toughen corporate tax laws rather than reforming them, enforcing the rules more strictly and closing loopholes instead of changing the tax burden on businesses more broadly.
In several cases, the budget released on Monday targets businesses – especially multinational corporations – that exploit weaknesses in existing laws to avoid paying taxes. But the government has taken no broader action to raise or lower basic taxes for businesses in Canada, even as U.S. President Joe Biden seeks to raise rates for U.S. businesses and his administration has approved a rate. global minimum tax.
“You don’t see any big tax cuts or big tax increases in terms of broadening the general corporate tax base, or even the small business tax.” Jamie Golombek, general manager of tax and estate planning at the Canadian Imperial Bank of Commerce, said in an interview. “I think there is some reluctance on the part of governments to do anything major and dramatic … until we see how long it will take for the recovery to fully kick in.”
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Instead, new measures are designed to keep Canada aligned with other countries on issues of common interest. It was only on one particularly hot issue – the taxation of digital giants like Google, Facebook and Amazon – that Canada stepped aside from the pack by introducing an interim tax of 3% pending a consensual approach to merge with it. international scale.
One of the most important proposals released on Monday would generate estimated tax revenues of $ 5.3 billion over five years by limiting the extent to which companies can deduct the interest they pay when borrowing to finance their businesses. operations. The government says some companies are “using excessive interest deductions” and that Canada is the only G7 country that has yet to take action to address the problem.
Starting in 2023, the amount of interest that some businesses can deduct would be capped at 40% of profits in the first year and 30% in subsequent years, with some relief for small businesses. The government plans to release a bill this summer.
Another measure targets businesses that exploit differences between Canadian and foreign laws to avoid paying taxes on certain income. The government is proposing phased changes to the Income Tax Act to eliminate the benefits of so-called “hybrid arrangements” and increase tax revenues by approximately $ 775 million. dollars over four years.
“It’s more about tightening the rules and looking specifically at international taxation and protecting the tax base,” said Fred O’Riordan, head of national tax policy at Ernst & Young LLP, in an interview.
From next January, the government plans to impose a 3% tax on certain revenues collected by the biggest giants of digital services, such as Google and Facebook. The proposal builds on a promise made in the government’s fall economic statement and is expected to bring in $ 3.4 billion over five years.
The tax would apply to all revenues from digital services that rely on data and content from Canadian users – such as social media, online marketplaces and advertising, as well as the sale of user data – and would only apply to companies with gross revenue of at least 750 million euros, or roughly $ 1.5 billion.
In total, the government estimates that its new tax measures for businesses would generate nearly $ 16 billion in revenue over five years. The budget also allocates new spending to the Canada Revenue Agency, including $ 304 million over five years to fight tax avoidance and avoidance, and $ 230 million over five years to collect taxes more rigorously. unpaid.
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