How to Make Canadian Businesses Competitive

​​​MNP recently made a submission to the federal House of Commons Standing Committee on Finance after being invited to provide the firm’s views on economic growth in Canada and how to ensure Canadian businesses’ competitiveness in North America.

​​As a leading national accounting, tax and business consulting firm in Canada, MNP represents more than 150,000 private enterprise and small business clients, and 16,000 farms throughout the country. The firm has its finger on the pulse of entrepreneurs and small businesses in Canada, their concerns and aspirations.

​​Based on their feedback and our tax specialists’ deep experience and knowledge, MNP recommended 10 key steps to ensure Canada’s tax regime enables entrepreneurs and small businesses to be competitive in global markets.

MNP’s 10-Point Action Plan

Lower the combined corporate tax rate from 27 percent to a more modest rate of 20 percent and to reach a combined personal tax rate that is below 50 percent. - Canada’s top personal tax rate currently averages 53 percent (including provincial taxes) which is the sixth-highest among the 36 Organization for Economic Co-operation and Development (OECD) member countries. Previously, one of Canada’s competitive advantages was our lower corporate tax rate, which has been eroded as other countries reduce their corporate tax rate. In addition, as taxes are reduced, the base subject to tax expands, which increases tax revenues overall.

Provide for 100% write-off of capital cost allowance on qualifying capital asset purchases to inspire capital investment – Having similar write-off rules to those south of the border will help to tackle capital outflow to the U.S.

Expansion of personal tax bracket thresholds based on a higher multiple of the bottom bracket threshold. Expansion of personal tax bracket thresholds will help attract and retain a larger talent pool and help prevent “brain-drain” of our professionals and highly skilled individuals.

Revise the taxable capital limits to account for inflation. While the taxable capital has been rescinded, this limit is still used to grind access to this small business deduction. This limit has not been adjusted for inflation since its introduction in 1982, although most other limits in our tax system keep pace with inflation. Thus, many businesses that would still be considered ‘small’ by today’s standards cannot access the small business limit.

Allow full tuition credit transfers to parents of children in post-secondary institutions and reintroduction of the education tax credit. Provide full tuition credit transfers (versus restricting transfers to $5,000 to parents) to recognize that parents fund a significant portion of children’s post-secondary tuition. This will help achieve the goal of increasing the education level of Canadians.

Reduce uncertainty, red tape and bureaucracy on tax compliance for entrepreneurs and small business. This alone would lead to simplification of tax legislation. For example, the new TOSI rules will likely cost entrepreneurs time and money in legal and accounting fees to support something as simple as a dividend payment.

Expand provisions of the Income Tax Act (ITA) to allow for families to use their lifetime capital gains exemption (LCGE) in a bona-fide succession, while preserving capital gain treatment in other situations when there is a transition in ownership that does not meet a bona-fide succession of the business.

​Allow small business rollovers for private business, similar to farm rollovers. This will help keep our private businesses family owned.

Maintain the current estate tax regime. There have been calls for an “estate tax”, but many people are not aware that we do have a regime of tax on death in Canada. This should be maintained, as it allows the taxes to be paid on the passing of the second spouse.

Increase the threshold for passive investments held inside small business corporations prior to reducing access to the small business deduction. This will help protect entrepreneurship.

Global Competition, Canadian Solution

We strongly believe in a made-in-Canada approach to tax competitiveness. Canada must be viewed both domestically, and on the world stage as a desirable country in which to do business and innovate, thus reaping the economic benefits of increased employment and spending. We need to react to the US tax legislation given the amount of cross border business activity, but we need to ensure Canada remains unique and the action items make sense from a policy perspective.

Given that small businesses (i.e. fewer than 50 employees) contribute on average 30 percent to national gross domestic product, the government should ensure tax policy and legislation protects Canadian entrepreneurs and small business – throughout the business cycle, from start-up to family succession to death.

For more information, contact:

Am Lidder, Senior Vice President, Taxation Services, at 778.571.3535 or [email protected]​

Kim Drever, Regional Tax Leader, at 780.832.4287 or [email protected]

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