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Canada

28 April 2007

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Budget 2007 highlights

On 19 March 2007, the Minister of Finance presented Budget 2007. The Budget includes a number of personal and business tax measures, as well as provisions intended to reduce corporate tax avoidance. Some highlights of the Budget are as follows:

Business tax measures

The Budget introduces tax measures that will lower the marginal effective tax rate on new business investment. These provisions will expand on those introduced in Budget 2006 , i.e.:

-   the reduction of the general corporate rate to 18.5% from 21% by 2011;
-   the elimination of the federal capital tax effective January 2006;
-   the elimination of the corporate surtax for all corporations in 2008; and
-   measures to level the playing field in the taxation of publicly-traded income trusts, partnerships and corporations.

Based on existing measures, the marginal effective tax rate on investment in Canada will be 31.1% in 2011. The Budget 2007 measures are intended to reduce this rate to 28.6%, which would give Canada the third-lowest marginal effective tax rate in the G7. These measures include:

-   providing assistance for Canada's manufacturing sector;
-   aligning capital cost allowances with useful life for manufacturing buildings and other assets; and
-   providing a financial incentive to the provinces to facilitate the elimination of provincial capital taxes.

Other business tax measures include:

-   a provision to allow Canadian manufacturing and processing businesses to write off their capital investments in machinery and equipment acquired on or after 19 March, 2007, and before 2009 using a special two-year 50% straight-line rate;
-   an increase in the capital cost allowance rate from 4% to 10% for buildings used in manufacturing and processing, and from 45% to 55% for computers;
-   updating the Canada-US tax treaty to facilitate cross-border investment and commerce; and
-   cracking down on corporations that use tax havens to avoid paying taxes by eliminating the deductibility of interest incurred to invest in business operations abroad, improving information agreements with other countries, and providing more resources to the Canada Revenue Agency to strengthen their audit and enforcement activities.

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