Lexpert magazine features articles and columns on developments in legal practice management, deals and lawsuits of interest in Canada, the law and business issues of interest to legal professionals and businesses that purchase legal services.
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LEXPERT MAGAZINE | APRIL/MAY 2017 35 | TAX COMPETITION | ness taxation rate, where benefits increas- ingly go to young businesses with growth potential instead of small, static opera- tions," Kennedy says. "We might also be looking at more targeted R&D incentives aimed at improving Canada's attractive- ness as a destination for technology-based companies, especially start-ups." Also swirling around had been talk that the federal government planned to increase the capital-gains tax-inclusion rate — the portion of a capital gain that is added to re- portable income — from 50 to 66 per cent. at, of course, wouldn't have sat well with everyone, and particularly not for well- heeled securities investors. While the federal budget, released in March, did much to alleviate those con- cerns, taxpayers will remain acutely sensi- tive to any policy redirect from the Prime Minister or Finance Minister Bill Mor- neau. "e reduction of the inclusion rate from 75 per cent to 50 per cent is one of the best things that ever happened to Canada's economy and the growth of wealth in this country," Tikhonov says. "Any increase in the capital gains inclusion rate will have a major impact on many of my mid-market clients and it would definitely affect the transfer of wealth because the baby boom- ers aren't getting any younger." Another area that could be impacted by US tax reform is transfer pricing. "Multina- tionals are always trying to structure intra- company transactions so that the expenses accrue in the country that has the higher tax rate," Morier says. "If it turns out that we have a higher corporate tax than the US does going forward, we might see Cana- dian multinationals pushing more produc- tion to Canada." en there's the prospect that Canada will respond in some other way if it regards any new US tax as tantamount to a tariff on cross-border trade. On her first visit to Washington in February, Foreign Affairs Minister Chrystia Freeland told US politi- cians that Canada would respond in kind to any measures that amounted to a tariff against Canadian goods. "If such an idea were ever to come into being, Canada would respond appropriate- ly," she told reporters on a conference call at the time. Still, about the only thing that's certain is that much remains uncertain, in- cluding the fact that Congress, despite re- peated attempts, has been unable to come to a consensus on meaningful tax reform for at least 30 years. Needless to say, opinionists and tax law- yers will be paying close attention. In the case of the latter, they will continue to serve their clients in adaptive ways that reflect new government measures. For companies with operations in both countries, or in- deed customers in both countries, the fu- ture sounds challenging. Julius Melnitzer is a freelance legal-affairs writer in Toronto. Upping Their Tax Game An analysis by the Unversity of Calgary's School of Public Policy shows how proposed tax cuts would bring the effective rate for new investment in the United States in line with lower Canadian rates GRAPHIC BY DAVID DIAS; SOURCE: UNIVERSITY OF CALGARY