Canada Has Lowest Tax Rate on New Business Investment in G7
July 18, 2019 – Ottawa, Ontario – Department of Finance Canada
Strong, growing businesses create more prosperous communities and good, middle class jobs. Since 2015, the Government has taken a number of significant steps to help businesses set up shop or grow in Canada—including changes to business taxes.
Today, Finance Minister Bill Morneau released an update on Marginal Effective Tax Rates (METRs). A METR is an estimate of how a new business investment is taxed, and can be used as a measure of competitiveness—balancing the impact of tax costs against incentives to invest.
The update shows that Canada's average METR is the lowest in the G7 and below the average of Organisation for Economic Co-operation and Development (OECD) countries. Canada also has an overall tax rate significantly lower than that of the United States, with an average tax advantage of 4.6 percentage points.
These findings show that not only is Canada one of the best places in the world to establish and grow a business, but also that the Government is responsive to changing global trends that may threaten this competitive edge. For instance, when the United States government's Tax Cuts and Jobs Act of December 2017 included significant federal corporate income tax reductions, the Government of Canada responded with measures in the 2018 Fall Economic Statement to ensure that Canada maintained its tax advantage.
These measures, along with others, are helping ensure Canada has an economy that works for everyone—one where businesses can confidently invest in their future growth, Canadians can earn and save more money, and more people are able to join the middle class.
"This update spells out what many Canadians already know: that Canada is the best place in the world to do business. The tax incentives our Government introduced in 2018 have made sure Canada maintains its competitive advantage, even in the face of significant tax reductions south of the border. We know that good, well-paying jobs rely on business success, so in today's changing world it is essential that our Government continue to help businesses innovate, expand, grow and confidently invest in Canada."
- Bill Morneau, Minister of Finance
The METR provides a broad representation of the overall effect of tax factors on business investment.
The measures introduced in the 2018 Fall Economic Statement have reduced the Canadian METR to its lowest level since the METR has been tracked, at 13.7 per cent.
In certain industries, such as manufacturing and processing, the Canadian advantage is even more significant, with a METR of just 3.1 per cent.
To enhance business confidence and encourage more job-creating investments, the 2018 Fall Economic Statement introduced three changes to Canada's tax system:
- Allow businesses to write off the full cost of machinery and equipment used for the manufacturing or processing of goods.
- Allow businesses to write off the full cost of specified clean energy equipment.
- The Accelerated Investment Incentive, which allows 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.
According to the International Monetary Fund, Canada is expected to be the second-fastest-growing G7 economy in 2019 and to tie for the fastest-growing G7 economy in 2020.
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Office of the Minister of Finance
Department of Finance Canada
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