KPMG in Canada’s productivity survey has revealed that 58 percent of Canadian business leaders considered comprehensive tax reform a top priority for the federal government to promote business competitiveness, second only to eliminating interprovincial trade obstacles at 64 percent.
The survey ran from May 9–20 and covered 250 business leaders in all Canada’s industries and sectors, according to a news release from KPMG LLP.
“In this period of nation-building, we have an historic opportunity to overcome years of complacency and build a competitive tax system that responds to today's challenges of sluggish productivity and slowing business investment in Canada,” said Lucy Iacovelli, KPMG in Canada’s Canadian managing partner, tax and legal, in the news release.
Among Canadian business leaders surveyed for KPMG’s new study:
- 91 percent wanted Canada to simplify the corporate income tax system
- 91 percent thought that governments should implement tax and regulatory policies supporting investment and the adoption of technologies, such as artificial intelligence (AI)
- 90 percent wished the country would reduce investment tax rates to spur economic growth
- 90 percent believed that Canada should remove investment barriers
- 88 percent sought an overhaul of the country’s economic and industrial policies
- 88 percent said a preferential capital gains tax rate for private capital investment would drive long-term investment into Canada’s startups, small and mid-sized businesses, and scaleups
- 72 percent claimed the existing federal tax policies did not sufficiently encourage investment
- 60 percent asserted that limited access to capital hampered investment in their operations, expansion plans, or technology
- 57 percent invested in their business, but found it challenging to tap into the markets due to the trade war
- 53 percent shared that their company planned to leverage the private capital markets to grow, expand into new markets, and gain business acumen and insights
“Corporate tax policies should incentivize businesses to put investment capital to work and make our industries and people more productive,” Iacovelli said in the news release. “This goes to the very heart of a resilient economy and our standard of living as Canadians.”
US tax bill
KPMG shared its new research in the context of the federal government’s efforts – as stated in its national agenda – to build a stronger Canada amid challenges such as tariffs, the Canada-US tax, and the US tax bill. In its news release, KPMG stressed that this tax bill would impact Canada.
“Current tax legislation before Congress would make permanent many of the 2017 U.S. tax incentives, which puts pressure on Canada to continue our own incentives that allow for faster business write-offs that free up capital to reinvest,” said Brian Ernewein, senior advisor of KPMG in Canada's National Tax Centre, in the news release.
“Simply matching the U.S. on these tax incentives would not restore Canada's competitive corporate tax advantage,” Ernewein added. “Actions – federally and provincially – to reduce the top corporate income tax rate in Canada would be a powerful response to these pending U.S. tax changes and, more generally, to the greater uncertainty of the current U.S. trade and investment environment.”
In its news release, KPMG noted that the US tax bill would also target jurisdictions with “discriminatory or extraterritorial taxes,” as perceived by the US administration.
“This retaliatory U.S. legislation has the potential to significantly increase the tax rate applying to U.S income generated by Canadian businesses and investors and could make such investments economically unviable,” Ernewein said in the news release. “It's critical that this legislation, if enacted, not apply to Canada.”
In its news release, KPMG emphasized the importance of encouraging more capital investment in Canada.
“For Canada to remain a destination of choice for investment, we must ensure our tax system is efficient, stable and aligned with the realities of international competition,” said Johanna Gerrie, KPMG in Canada’s national M&A tax leader, in the news release.
“We face stiff competition from the U.S. and other countries in attracting large-scale investment from institutional investors, venture capital and pension funds,” Gerrie added. “These sources of capital can unlock growth and accelerate technology and infrastructure development to support nation-building projects.”
In its news release, KPMG noted that the new federal government has proposed tax measures such as:
- expanding flow-through shares beyond the mining sector to Canada’s startups that permit investors to deduct eligible research and development (R&D) expenses
- a 20 percent AI adoption tax credit for some small- and mid-sized businesses
- improving the scientific research and economic development program
- providing a patent box regime that keeps tax rates on intellectual property income low so that more Canadian companies can own and commercialize their ideas within the country
“While these targeted measures are a start, the federal government needs to reaffirm its commitment to ambitious, broad-based corporate tax reforms that apply to businesses of all types and sizes,” Iacovelli said in KPMG’s news release. “Tax changes should ease access to domestic and foreign capital and reward productivity-enhancing investments, including AI adoption.”
In its news release, KPMG suggested the following steps to help improve the corporate tax system:
- assessing possible new approaches, including reducing the top corporate tax rate and ensuring fiscally responsible government spending
- making the tax system simpler and easier by removing complex tax measures
- speeding up investment write-offs
- fast-tracking R&D incentives
- offering sufficient R&D incentives to large companies
- simplifying provincial sales tax collection for businesses
- decreasing the reporting burden
- reviewing business penalties