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Boosting productivity and growing our economy with the 2014 federal budget

Fedral Tax Budget 2014
By Albert Baker

Canada has maintained relative economic stability despite a slow global recovery and sovereign debt issues that have hurt European economies. Yet it’s our view that economic growth here at home will be hindered unless we address Canada’s lagging productivity problem as outlined in our 2013 report, The future of productivity.

We believe Canadian tax policy can play a significant role in helping Canada become more productive and globally competitive.

It’s our view that economic growth here at home will be hindered unless we address Canada’s lagging productivity problem.

With that in mind, we have submitted a number of tax policy suggestions to the House of Commons Standing Committee on Finance as part of the annual pre-budget consultation process in which the Committee invites Canadians to share their recommendations. Some of our most important tax policy recommendations are summarized below:

  1. Boost foreign investment through scientific research tax credits
    To enhance Canada’s global attractiveness and encourage foreign investment, we believe that the scientific research and experimental development (SR&ED) tax credit should be expanded. These credits help encourage cutting-edge research, but most larger companies are only eligible if they have taxable income. This makes it hard for many companies to plan major R&D projects over the longer term.

    We believe that by expanding eligibility and making SR&ED tax credits fully “refundable” to companies, whether or not they make a profit, would position Canada to become a leader in innovation — both in the knowledge economy and in new technologies designed to exploit energy and resources.

  2. Spur a start-up economy by supporting early-stage financing
    Canada needs to do more to help start-ups by creating a vibrant venture capital ecosystem. Tweet this From early seed financing to initial public offerings, Canada’s financing ecosystem lags countries like the United States in terms of providing entrepreneurs with world-class ideas access to capital — especially in the riskiest phases of development. Without this support, Canada risks losing out on the next Google and Apple because entrepreneurs are forced to set up shop where venture capital is more readily available.

    To support a strong venture capital ecosystem, the government should institute a tax credit for Angel investors. This tax credit would encourage more of the risky lending that high-growth, highly productive businesses need. An angel tax credit would be a good first step toward creating a world-class venture capital sector in Canada. We believe this tax incentive could have the greatest impact in growing our economy.

  3. Attract and retain the world’s most talented people
    To drive innovation and enhance the nation’s competitiveness, Canada needs to attract and retain the world’s top talent. We believe the federal government can help by improving immigration policies, encouraging retirement savings and making the personal tax system more competitive.

Human capital needs:

  • With an aging workforce and a skills shortage in a number of evolving and new industries, Canada will find it increasingly difficult to compete in the global economy of the future.
  • The federal government can address our Canada’s future needs by increasing immigration to fill skills shortage gaps and increasing overall targets.

Enhancing the personal income tax system:

  • Once the budget is balanced, we believe the government should increase the threshold at which the top rate of tax begins. The top personal tax rate currently applies on income greater than $136,270. This change would make Canada more attractive to the high-value workers who are already here and those who are thinking of moving here.

As Canada’s largest tax practice, we are committed to contributing to the shaping of a Canadian tax policy that will help Canada attract investment and create an innovation ecosystem that extends from the germination of an idea to the development of thriving, globally competitive companies. Ultimately, it’s about ensuring our businesses are globally competitive so that the standard of living we all enjoy today will be one our children and grandchildren enjoy tomorrow.

We welcome your feedback on these tax policy ideas. Please leave a comment below.

Budget 2014: Deloitte’s open letter to the Minister of Finance 
Budget 2014: Deloitte’s brief to the House Finance Committee

Albert Baker

Albert Baker is Deloitte's Global Tax Policy Leader. He specializes in international tax.

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