Canada’s Trudeau outlines corporate and international tax priorities in mandate letter

By Doug Connolly, MNE Tax

Canadian Prime Minister Justin Trudeau includes various high-level tax policy objectives — such as measures targeting bank income and tax avoidance, as well as research and development (R&D) amendments — in a December 16 mandate letter to Deputy Prime Minister and Minister of Finance Chrystia Freeland.

With respect to ongoing global tax reform efforts, Trudeau also reiterates the government’s double-pronged approach. On the one hand, he calls for continued work on supporting and implementing the OECD agreement. On the other hand, he wants to move forward with the digital services tax fallback plan, for which the government introduced draft legislation earlier this week.

Plans outlined in the letter to boost revenues in support of recovery efforts include several corporate and individual tax amendments, as well as measures to tackle tax avoidance.

On the corporate side, Trudeau seeks legislation increasing income taxes on banks and insurance companies that earn more than CAD 1 billion (USD 780 million) and requiring them temporarily to pay a “Canada recovery dividend.”

Revenue measures geared towards tax avoidance would focus on the tax gap and the general anti-avoidance rule (GAAR). This would include, to close the tax gap, new investments in the Canada Revenue Agency to combat aggressive tax planning and avoidance.

Regarding GAAR, the government intends to modernize the regime with a focus on economic substance. It also seeks to restrict the use of corporate tax planning techniques by financial institutions and other federally regulated entities that use tiered structures to reduce Canadian taxes by flowing income through entities in low-tax jurisdictions.

The revenue boosters on the individual tax side generally target the wealthy. The government aims to establish a 15% minimum tax for top earners, as well as implement taxes on luxury cars, boats, and planes.

Other business measures of note focus on R&D and encouraging investment. The government wants to reform the scientific research and experimental development program “to reduce red tape, align eligible expenses with today’s innovation and R&D, and make the program more generous for companies that take the biggest risks.”

To boost investment, Trudeau also seeks to amend tax legislation to permit private Canadian companies to expense up to CAD 1.5 million (USD 1.2 million) of “growth-enhancing investments, such as software, patents, and machinery.”