The tax reductions in Canada's Economic Action Plan are an essential part of the Government's effort to stimulate the economy and to create or maintain jobs. Lower taxes help ease the financial pressure on individuals, families and businesses and help build a solid foundation for future economic growth. Lower taxes also stimulate individual spending, which helps to protect and create jobs. The tax reductions in the Action Plan build on previous reductions and reinforce the Government's ambitious agenda of tax relief aimed at creating a tax system that improves standards of living and fuels job creation and investment in Canada.
The Government took early significant action in the October 2007 Economic Statement, anticipating the prospect of a weaker global economy. It put in place broad-based permanent tax reductions that are sustainable for the future. These reductions have positioned Canada better than most countries to withstand the effects of today's global economic challenges.
Actions taken by the Government since 2006, including those in the Economic Action Plan, will reduce taxes on individuals, families and businesses by an estimated $220 billion over 2008–09 and the following five fiscal years. Tax relief for Canadian families and individuals (not including housing-related tax relief) provided under the Economic Action Plan from 2008–09 to 2010–11 totals $6.9 billion (Table 2.1.1).
|(millions of dollars)|
|Personal income tax relief for all taxpayers||470||1,885||1,950||4,305|
|Increases to the National Child Benefit
supplement and Canada Child Tax Benefit
|Enhancing the Working Income Tax Benefit||145||580||580||1,305|
|Targeted relief for seniors||80||325||340||745|
|Total—Reducing the Tax Burden
|Note: Totals may not add due to rounding. The Canada Child Tax Benefit and the National Child Benefit supplement are considered expenditures for budgetary purposes and thus should not be included in calculations of total tax relief.|
The Economic Action Plan introduced significant new personal income tax reductions that have provided relief, particularly for low- and middle-income Canadians, as well as measures to help Canadians purchase and improve their homes. For example:
Tax relief for individuals and families announced in Canada's Economic Action Plan is now fully implemented, and Canadians are realizing its benefits.
Actions the Government has taken since 2006 are providing important stimulus to the economy and creating jobs, with almost $160 billion in tax relief for individuals and families over 2008–09 and the following five fiscal years. Key actions include:
Measures introduced since 2006, including the Working Income Tax Benefit (WITB), have lowered the welfare wall, so that low-income individuals may keep more of their earnings. In 2010, if the WITB had not been introduced, a typical low-income single parent would have only kept 25 cents of each dollar earned between $3,000 and $10,000, due to reduced benefits from federal and provincial income-tested programs and taxes. As a result of the enhanced WITB, the same family will keep about 45 cents of each dollar earned.
A competitive business tax system is essential for creating an environment that encourages new investment, growth and job creation in Canada. The Economic Action Plan builds on corporate income tax reductions to help position Canadian businesses to weather the effects of the current global economic challenges, maintain and create jobs, and emerge from the economic downturn even stronger. Economic Action Plan measures include:
All of the business tax measures in the Economic Action Plan have been fully implemented.
The Government has introduced significant tax relief for Canadian businesses since 2006, including measures in the Economic Action Plan, that total more than $60 billion over 2008–09 and the following five fiscal years. Key actions include:
The economic cost of giving up the three-point reduction in the federal corporate income tax rate planned by 2013 would be a long-run loss of $47 billion in capital investment and 233,000 jobs.
— Duanjie Chen and Jack Mintz report
"Canada's Tax Competitiveness After a Decade of Reforms: Still an
Unfinished Plan," May 2010
Early actions taken by the Government as well as measures included in Canada's Economic Action Plan are positioning Canadian businesses to emerge stronger and better equipped to compete globally as the economy recovers. An innovative and growth-oriented small business sector can play an important role in this recovery. Recognizing this, the federal government is helping small businesses introduce and invest in their innovations.
The tax system provides considerable support to small businesses through lower corporate income tax rates, incentives for investors, enriched financial support for research and development (R&D), and simplified compliance.
Since 2006, the Government has introduced a large number of tax measures to support investment, innovation and growth by small businesses, including:
As a result of federal and provincial business tax changes, Canada has an overall tax rate on new business investment that is substantially lower than any other Group of Seven (G-7) country (Chart 2.1.3).
These tax changes have reduced the cost of capital and increased the expected rate of return on investment, and will therefore encourage firms to invest more. For example, a recent Department of Finance study examined the impact of federal corporate income tax rate reductions and found a strong relationship between taxation and investment. This finding is consistent with a number of other studies that have examined the impact of taxes on investment.
Based on the study, the reduction in the cost of capital from federal and provincial business tax changes between 2006 and 2012 would be expected to significantly increase the capital stock in the long run by almost 4 per cent. The capital stock represents the productive physical assets available to businesses and is a key driver of economic growth and job creation.
Improving the competitiveness of the Canadian tax system requires collaboration among all governments to help Canadian businesses compete globally as the economy recovers. Provinces and territories have also taken action to enhance Canada's business tax advantage. These actions are helping Canada build a strong foundation for future economic growth, job creation and higher living standards for Canadians.
|(millions of dollars)|
|Personal income tax relief for all taxpayers||1,885||1,950||1,950|
|Increases to the National Child Benefit supplement
and Canada Child Tax Benefit
|Enhancing the Working Income Tax Benefit||580||580||580|
|Targeted relief for seniors||325||340||340|
|Total: Reducing the Tax Burden for Canadians||3,020||3,180||3,180|
|Tax Measures to Support Housing
|Home Renovation Tax Credit||3,000||–||–|
|Increasing withdrawal limits under the Home
|First-Time Home Buyers' Tax Credit||175||180||180|
|Extending the Mineral Exploration Tax Credit||70||-15||-15|
|Increase in the income limit for the small business
|Temporary 100-per-cent capital cost allowance rate
|Temporary accelerated capital cost allowance
rate for manufacturing or processing machinery
|1 Includes estimated values for tax reduction measures.|
 The marginal effective tax rate (METR) on new business investment takes into account federal, provincial and territorial statutory corporate income tax rates, deductions and credits available in the corporate tax system and other taxes paid by corporations, including provincial capital taxes and retail sales taxes on business inputs. The methodology for calculating METRs is described in the 2005 edition of Tax Expenditures and Evaluations (Department of Finance).
 Department of Finance, "Corporate Income Taxes and Investment: Evidence From the 2001–2004 Rate Reductions." Tax Expenditures and Evaluations (2007), pp. 41-56.