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(Bloomberg) — Canada’s government will proceed with measures announced last year to allow some businesses to speed up how quickly they write off machinery and equipment, as well as to expense research and development costs immediately to save on corporate taxes.
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New provisions include immediate expensing for manufacturing or processing buildings bought on or after Tuesday and used before 2030. Ottawa will also reinstate accelerated expensing for liquefied natural gas equipment and related buildings, as long as they’re considered low-carbon facilities.
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The headline corporate tax rate remains the same, but Finance Minister François-Philippe Champagne’s budget says those deductions will reduce the marginal effective tax rate to 13.2% from 15.6%, which the government claims will make it the lowest among Group of Seven nations.
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The government has touted Canada’s low marginal effective tax rate for several years, but businesses often rely on headline statutory corporate tax rates when making decisions about where to invest capital.
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The US recently allowed companies to deduct the entire cost of certain big purchases upfront.
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Personal taxes were largely untouched in the budget after the government cut the lowest income tax rate by one percentage point in July.
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Here are some key tax proposals in the budget released Tuesday:
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Corporate taxes
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- The government is proceeding with changes to its scientific research and development credit that were announced last year, making the enhanced 35% credit available to certain public corporations and increasing the spending limit and phase-out threshold for that credit
- The budget proposes to expand the list of critical minerals eligible for a clean technology manufacturing investment tax credit to include antimony, indium, gallium, germanium and scandium. It’s also pledging to extend the availability of full credit rates for the carbon-capture tax credit by five years
- The government wants to limit the deferral of tax on investment income using tiered corporate structures with mismatched year-ends, which would bring in C$540 million ($383 million) in revenue by 2030
- It also wants to reform transfer pricing rules by aligning them with guidelines from the Organization for Economic Development and Co-operation, as well as with international standards on cross-border transactions between related parties. The measures are expected to raise C$510 million by 2030
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Sales and excise taxes
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- The luxury tax on vehicles and aircraft worth more than C$100,000 and boats worth more than C$250,000 would end as of Wednesday
- The 1% underused housing tax would be gone this calendar year. The government says it’s not needed because of similar municipal and provincial measures
- Together, those two measures had been expected to bring in C$285 million by fiscal year 2030. The government said removing them will lead to administrative savings
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Personal taxes
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- Canada plans to broaden its 21-year rule on personal trusts, which prevent the vehicles from indefinitely deferring taxes. As of Tuesday, a rule aimed at retaining the 21-year period when property is directly transferred from trust to trust would be extended to also include indirect transfers
- Ending the increase to the capital gains inclusion rate, which was announced in the 2024 budget but later cancelled, will mean C$5.5 billion in lost government revenue by 2030, according to the budget document
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—With assistance from Christine Dobby.
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English (US)