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Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Friday, December 31, 2010

Canada Drops Corporate Tax Rate to 16.5%, Less Than Half the U.S. Rate

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The headline is a good example of either deliberately misunderstanding the concept or extremely poor journalism. The Cdn tax system has an explicit "ceding" of taxing ability from the federal government to the provinces. Income not taxed by a province is taxed at a higher rate. So a headline rate of 26.5% for 2011 would be accurate as this is the lowest non-small business corporate tax rate generally available in Canada. But a 16.5% statutory rate just doesn't exist for large companies.

Posted by: SAN | Dec 31, 2010 10:16:51 AM

I would go for a system like SAN described in the first comment. At least the states could get 38% of the tax money to spend like they want and to help state businesses rather than have it disappear down the rat hole inside the beltway and have much of it diverted to support unions, which are anti-business.

Posted by: Woody | Dec 31, 2010 1:18:42 PM

States are allowed to tax corporations at any rate they choose. California, for instance, has a rate of 8.84 to almost 11 percent. So SAN, what's your point?

Posted by: Swamp Thing | Dec 31, 2010 6:16:43 PM

San does not have it quite right, nor does the headline. Corporations taxable on income earned in Canada, pay federal and provincial taxes. The quoted rate is the new FEDERAL rate. On top of that, the provinces all collect some more, generally in two steps. Corporations with taxable income under $500,000 per year (small business limit) pay (in Ontario) tax at a rate of 5.5% on top of the federal rate (18% in 2010, 16.5% in 2011). Corporations pay 14% Ontario provincial rate above the 2010 at either 23.5 or 32%.

If the corp is close to the SBL, the usual route is to pay management bonuses (deductible to the corp, but taxable in the hands of the recipients) to reduce Taxable Income. Smart employees/management then make an Registered Retirement Savings Plan deposit (think Keogh plan), which deposit is deductible from taxable income...thus funnelling the cash directly to the plan, with no personal tax effect.

Of course, all of this is based on TAXABLE income, and as usual, any relationship between net income, taxable income and tax payable is purely coincidental. More here if any really gives a damn:

Posted by: Dyspeptic Curmudgeon | Dec 31, 2010 6:24:02 PM

much was made by the left in pointing out that ireland collapsed with the some of the lowest corporate rates in the world.

well worth looking, if one is honest, at the fact that ireland had a spending problem, despite record revenue and massive growth of gdp for almost a decade.

if history is any teacher...
they were able to marvel at the canadian healthcare, despite the fact that it was slow and outsourced.

they find merit in the the fact that canada has done well economically, while glossing over the fact that canada makes a hefty contribution to their gdp thru selling oil to the US.

is there any doubt that the imminent and further success of the canadian economy will be solely attributed to their 'wonderful' healthcare system, ignoring half the ledger of a budget, their willingness to drill, and now, their rock bottom corporate rates?

as for the distinctions being made between federal and provincial corporate rates...

isn't it rather similar to the us federal+state taxes here?

I have noticed a plethora of foreign auto companies opening in the southern states...and NOT in the midwest.

Posted by: mark l. | Jan 1, 2011 7:59:53 AM

Most larger corporations pay little if any corporate income taxes in the US, despite the RATE being 35%. The news should discuss the marginal and effective tax rates to present a balanced picture of where things actually stand. If that Congressman believes that large corporations will relocate to Canada from New York because of the 35% rage, well, he just has no clue how things really work. To me, that is the bigger issue presented by the news piece.

Posted by: | Jan 1, 2011 9:45:56 AM