Pre-budget consultation report released
Canadian Tax Policy Alert, December 21, 2011
On December 14, 2011, the House of Commons Standing Committee on Finance (the “Committee”) released its pre-budget consultation report entitled Staying Focused on Canadian Jobs and Growth. The report outlines the Committee’s recommendations after considering more than 400 submissions (the Deloitte submission is available here) and hearing from more than 150 witnesses, including Deloitte’s Managing Partner of Tax, Andrew W. Dunn.
While Canada has weathered a difficult global economic cycle more successfully than most countries, a full economic recovery remains elusive. In this environment, the report recommends very little new spending, and calls for the federal government to “stay the course” on various policies being implemented. For example, the report recommends that the federal government:
- Return to a balanced budget by 2014-2015 as planned without raising taxes
- Reduce corporate tax rates in 2012, as scheduled
- Consult on potential new rules for the taxation of corporate groups, study the impact of legislation on access to skilled service in Canada provided by non-residents, and continue to implement the recommendations of the Advisory Panel on Canada’s System of International Taxation
- Reduce red tape through the reduction of unnecessary regulations
- Review the report of the Expert Panel on Federal Support to Research and Development (the “Jenkins’ Report”)
- Use tax incentives to promote the development and use of renewable energy
- Explore ways to encourage greater charitable giving by Canadians
- Reduce the personal tax burden through income splitting and doubling the contribution limits for tax-free savings accounts, but only after a return to balanced budgets
- Review the registered disability savings plan
- Help skilled workers move between provinces more easily with tax incentives or other incentives
- Work with provinces and territories on issues related to retirement income and pensions, and specifically implement the pooled retirement pension plan
The Committee also recommends a number of new initiatives such as:
- A study of the issue of intergenerational transfers of family businesses
- The appointment of an expert panel to “review, modernize and simplify” both the corporate and personal tax systems
- A review of the tax filing due date and methods for individuals
- A review of the rules for registered retirement income funds and registered retirement savings plans
The Future of Tax — Deloitte’s policy vision for Canada
Deloitte applauds the Committee’s recommendations, which call for a continued focus on strengthening Canadian jobs and businesses through this difficult economic cycle. However, we believe that the government can do more to enhance national competitiveness and stimulate economic growth by addressing Canada’s lagging productivity as discussed in our report, The future of productivity: An eight-step game plan for Canada. In our pre-budget letter to Minister Flaherty we outlined our recommendations for the 2012 federal budget; these fall in four broad categories
1. Foster business innovation through improvements to the SR&ED program
The scientific research and experimental development (SR&ED) tax regime should be improved by extending refundability of the investment tax credit to all businesses. Expanding the refundable credit to all corporations would appropriately reward the risks inherent in carrying out R&D in Canada, and would help attract foreign companies seeking global investment opportunities. The Jenkins’ Report did not explicitly deal with approaches that could make Canada more attractive to foreign investment and this is key to Canada’s continued economic prosperity.
2. Spur a “start-up economy” with improved financing support
Consistent with the suggestion in the Jenkins’ Report to increase the amount of risk capital available to start-up companies, we believe that an angel tax credit should be introduced. This will help build an environment that fosters innovation and entrepreneurship, leading to job creation and economic growth.
3. Attract and retain the world’s most talented people
In addition to the Committee’s suggestions to reduce the personal tax burden, we believe that personal tax rates should be lowered to retain productive individuals in Canada and to attract immigrants with the requisite skills to support Canada’s long term economic prosperity. This reduction can be done gradually over a period of 10 to 15 years, but a signal of this intention now would be attractive to Canadian residents and potential immigrants.
In addition to the reduction of rates, Canada needs a targeted immigration policy for individuals who are educated, productive and innovative to improve the ability of Canadian enterprises to compete globally and enhance government revenues from corporate and personal taxation.
4. Enhance certainty through tax administration
Certainty in tax law is key to attracting and retaining corporate investment and global talent. The tax community as a whole — revenue authorities, taxpayers and tax advisors — all benefit from a clear understanding of the law at any point in time. Accordingly, we recommend a reduction in administrative red tape and filing complexities, the timely enactment of legislative amendments in comfort letters, and the timely introduction and advancement of tax proposals with explanatory notes.
To read more about Deloitte’s tax policy vision for Canada, please visit thefutureoftax.ca.
This publication is produced by Deloitte & Touche LLP as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors. Your use of this document is at your own risk.