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April 16, 2024

Tax Perspectives

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Please note that these publications may not be up-to-date as taxation matters are subject to frequent changes.

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Supplement 2003

On February 18, 2003, the Minister of Finance released a number of proposed tax changes. We summarize the more significant ones in this commentary.

Federal Capital Tax

At present, there is a federal capital tax of .225%. While this is a small percentage, the tax is $225,000 on taxable capital of $100 million. This tax is not deductible. Capital taxes have long been criticized as an impediment to business, especially in capital intensive industries, because they are payable regardless of profitability.

The Budget proposes to eliminate the federal capital tax over five years. The rate will be decreased by .025% per year, from 2004 to 2007, and from there will be eliminated entirely as of January 1, 2008.

At present, corporations have an exemption of $10 million of taxable capital. This exemption will be increased to $50 million effective for taxation years ending after 2003, so that if a corporation's taxable capital is less than $50 million, there will be no federal capital tax.

Corporations with taxable capital over $10 million could consider a change of year-end. If the fiscal year finishes in 2004 not 2003, the $50 million exemption will be available to reduce capital tax. The savings is up to $90,000.

Note that a corporations' taxation year does not necessarily have to coincide with its fiscal year for accounting purposes. This could apply in situations where there are subsidiaries with high taxable capital that have different year-ends than the parent company.