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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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Spring 2007
Volume 7, Number 2

SPECIAL BUDGET COMMENTARY
March 19, 2007 Federal Budget


Businesses

The Budget continued with the corporate tax rates that were proposed in the 2006 Budget.

The only additional change is to further reduce the general tax rate in 2011 to 18.5%.


Tax Rates

This table outlines the proposed reductions in federal tax rates from 2007 to 2011.

Capital Cost Allowance (CCA) Rates

Currently, manufacturing and processing (M&P) equipment can be depreciated on a declining balance method at a rate of 30% per year. The Budget proposes to temporarily allow an accelerated CCA deduction for eligible M&P machinery and equipment at a rate of 50% on a straight-line basis, subject to the half-year rule. This would mean that in Year 1, the maximum CCA deduction would be 25%; in Year 2, the maximum deduction would be 50%; and in Year 3, the maximum deduction would be 25%. This will apply for all M&P machinery and equipment purchased after March 19, 2007 and before 2009. This is a significant incentive to businesses to purchase eligible machinery and equipment.

The Budget also proposes to increase the CCA rate for buildings used in manufacturing and processing as well as other non-residential buildings and computers.

The increased rates will apply to eligible property acquired on or after March 19, 2007.

Instalments

At present, Canadian-controlled private corporations (CCPC's) must make instalments on a monthly basis. The Budget proposes to allow "eligible CCPC's" to make quarterly instalments for taxation years that begin after 2007. A CCPC is an "eligible CCPC" if:

  1. The taxable income of the corporation for either the current or previous year does not exceed $400,000;
  2. The corporation qualified for the small business deduction for either the current or previous year;
  3. The taxable capital employed in Canada of the corporation does not exceed $10 million in either the current or previous year; and
  4. The corporation has filed all returns under the Income Tax Act and Excise Tax Act in the last 12 months as well having paid all taxes related to GST, employment insurance, Canada Pension Plan, and income tax for the last 12 months.

For those corporations that qualify, the quarterly instalments will be due on the last day of each quarter of the corporation's taxation year. For those corporations eligible to pay quarterly but do not remit the instalment when due, they will be required to make monthly payments. This does not affect the balance due date for any corporate income taxes.