Last updated on November 18th, 2018
Canada’s Finance Minister, Bill Morneau, who is facing pressure over managing misbalances of the Canadian economy, is highly unlikely to follow the Trump administration’s pricey changes, i.e. the way American businesses write-off their capital costs. Morneau, is due to deliver his fall economic statement next week, a senior government source has informed.
A problem reported by big business leaders in American style of corporate taxation is that their policy has created a competitive gap between the two countries. Besides, adding billions of dollars to the US deficit is something Canada is highly likely to avoid.
US President Donald Trump made changes to his country’s corporate taxes last year, pushing its capital investment write-offs for businesses, and Bill Morneau is facing the heat to adopt the same style to keep the Canadian firms competitive.
The corporate tax levied by Canada is almost similar to that of USA, however, Bill Morneau has argued that the rate he has maintained is still competitive. Besides, stating that when his nation had much lower rate, it could only do little to boost business investment.
USA’s policy allows US businesses to claim 100 percent of their capital investments for assets that have a useful life of less than 20 years. Howbeit, Canada’s capital assets are classified into different categories, each having specific rate of write-offs.
For instance, machinery and equipment used in manufacturing and processing is written-off between 30 to 50 percent over different periods of time, starting from 3 years up to the lifetime of the asset.
A consultant report drafted for Business Council of Canada, also suggests that Canada won’t adapt to the USA’s style of taxation. According to the report, Canada matching the US on tax changes and implementing them via raising the GST, is not a feasible option.
There will be some changes for sure, however, it still remains to be seen whether Canada’s new rule will offer 100 percent write-off over a longer period of time, or a write-off of less than 100 percent over a shorter period of time. The new policies could also target only certain kind of capital assets, or could even apply to all sectors of the economy.