Pending Canadian income tax issues - includes response from Canadian Department of Finance

Tax Executive, The, Nov-Dec, 1992

D. Recommendation

Tax Executives Institute recommends that the Department of Finance initiate a dialogue with the United States and Mexico with a view toward identifying and removing distortions caused by differences in taxation, particularly with respect to investment decisions and competitiveness. We request an opportunity to participate in such an initiative, to provide further information or assistance, and to participate in any Government-Industry Committee that might be established to study these matters.

With respect to tax competitiveness generally, we request a report on what the Government is doing to respond to the criticisms of the Canadian taxation system laid down in the Prosperity Secretariat Interim Report or the Conference Board of Canada Taxation study. Similarly, is the Department considering implementation of any of the measures adopted by the EEC?

III. Corporate Tax Measures for Difficult Economic Times

For many companies represented by TEI's membership, especially those in the manufacturing and resource sectors, the current recession represents the worst economic downturn since the Great Depression. Extraordinary measures by governments will likely be required to help rebuild Canada's industrial base. Thus, the Federal Government has announced that its top priority is to help Canadian industry maintain and enhance its international competitiveness. The Federal Government has already taken positive steps by setting up the Prosperity Secretariat and holding consultations with a broad range of industries to determine what steps must be taken by both the private sector and governments to enhance the international competitiveness of Canadian industry.

TEI believes that the Federal Government should re-think some of the policies which led to the elimination of most tax incentives for corporations in the 1987 tax reform proposals. In 1987, Canadian corporations were, generally speaking, financially healthy and able to weather the elimination of tax incentives. Today, however, that is not the case. All levels of government are experiencing record levels of lost tax revenues caused by record drops in corporate profits, rising levels of unemployment, and personal and corporate bankruptcies.

Industry and consumers are not in a position to turn the economy around without some intervention by government, for example, in the form of tax incentives. To dismiss the proposition on the ground that |we cannot afford tax incentives because of the deficit' is to miss the point. Many analysts believe that Government properly cannot afford not to do something to nurse industry and the economy back to good health. Recent press reports of the Government's intention to spend up to $25 billion to improve the country's infrastructure underscore the Government's intention to create jobs. TEI believes that the private sector can play a pivotal role in energizing the economy by capturing or retaining cash for growth. Tax measures such as the following would assist corporations in achieving both the short-term goal of "economic survival" and the long-term goal of enhancing "international competitiveness":