Canada Boosts Post US Tax Reform Competitiveness With Tax Measures

; posted on
November 22nd, 2018

In response to the U.S. Tax Cuts and Jobs Act, therefore on 21 November 2018, Canada has proposed three measures to boost its competitiveness, which would give it the lowest overall tax rate on new business investment among G-7 countries.


The U.S. Government's Tax Cuts and Jobs Act of 2017 includes a federal corporate rate cut from 35 to 21 per cent. This cut, along with other corporate tax measures, may challenge Canada's ability to attract investment and remain competitive with the U.S.

As a response to the reform, Canada, through its measures, will ensure that the country maintains a tax advantage in attracting new investments. The average overall tax rate in Canada on new business investments—as measured by the Marginal Effective Tax Rate (METR) - will fall from 17.0 per cent to 13.8 per cent. This will give businesses in Canada the lowest overall tax rate on new business investment in the G7, significantly lower than that of the United States.

The Government of Canada's new proposed tax measures will provide focused, fiscally responsible support for growth-generating investments in Canada, while continuing to keep the debt-to-GDP (gross domestic product) ratio low and on a downward track.

The Tax Measures

To enhance business confidence and encourage more job-creating investments, the Canadian government would allow the full cost of machinery and equipment used in the manufacturing and processing of goods to be written off immediately for tax purposes. The written off full cost of asset also applies to specified clean energy equipment, which aims to spur new investments and the adoption of advanced clean technologies in the Canadian economy.

The government also proposed measures to accelerate Investment Incentive, by allowing businesses of all sizes and in all sectors of the economy to write off a larger share of the cost of newly acquired assets in the year the investment is made. At the same time, Canada would accelerate support for business innovation by providing a further $800 million over five years to the Strategic Innovation Fund, which will support innovative investments across the country and in all economic sectors.  These changes will make it more attractive to invest in assets that will help drive business growth and secure jobs for middle class Canadians.

Source: Canadian Government

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