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$1.4 billion in tax relief for Canada’s manufacturing and processing sector over the 2014-15 to 2017-18 period through a two-year extension of the temporary accelerated capital cost allowance for new investment in machinery and equipment.
$920 million to renew the Federal Economic Development Agency for Southern Ontario (FedDev Ontario) for five years, starting on April 1, 2014.
$200 million for a new Advanced Manufacturing Fund in Ontario for five years, starting on April 1, 2014, funded from the renewed FedDev Ontario.
Building on the success of the National Shipbuilding Procurement Strategy, the Government will better ensure that purchases of military equipment create economic opportunities for Canadians by developing key domestic industrial capabilities to help guide procurement, by promoting export opportunities, and by reforming the current procurement process to improve outcomes.
Providing stable funding of close to $1 billion over five years for the permanent Strategic Aerospace and Defence Initiative, as well as providing $110 million over four years, beginning in 2014-15, and $55 million annually thereafter, for the creation of an Aerospace Technology Demonstration Program.
$92 million over two years starting in 2014-15 to continue support for forestry innovation and market development.
$225 million to expand and extend the temporary Hiring Credit for Small Business for one year in recognition of the important role that small businesses play as job creators in the Canadian economy.
$110 million over five years to increase support for small business owners, farmers and fishermen by increasing the Lifetime Capital Gains Exemption to $800,000 and indexing the new limit to inflation.
Continuing to reduce red tape and improve services for small businesses.
Reviewing and updating the Code of Conduct for the Credit and Debit Card Industry in Canada to ensure its principles of transparency, fairness and competition are upheld in a mobile payments environment.
Announcing economic and security initiatives to enhance perimeter security and facilitate legitimate trade and travel under the Canada-United States Beyond the Border Action Plan.
Enhancing Canada’s foreign trade zone policies and programs to strengthen our globally competitive business environment.
Extending Export Development Canada’s domestic activities in order to provide capacity in the domestic credit market to meet the needs of Canadian exporters, in a manner that complements private sector lenders.
Modernizing Canada’s General Preferential Tariff regime for developing countries to target benefits at those countries most in need.
Supporting junior mineral exploration by extending the 15-per-cent Mineral Exploration Tax Credit for flow-through share investors for an additional year, at a net cost of $100 million.
$57.5 million over five years to enhance regulatory certainty for the aquaculture sector.
$33.1 million in 2013-14 to extend the Atlantic Integrated Commercial Fisheries Initiative and the Pacific Integrated Commercial Fisheries Initiative.
$3 billion over five years with provincial and territorial governments under Growing Forward 2 to support innovation, competitiveness and market development in agriculture.
Changing the rules for portfolio insurance to increase market discipline in residential lending and reduce taxpayer exposure to the housing sector to restore taxpayer-backed portfolio insurance to its original purpose.
Proposing legislation to carry out the Government’s responsibilities for capital markets, consistent with the decision rendered by the Supreme Court of Canada, if a timely agreement cannot be reached with provinces and territories on a common securities regulator.
Implementing a comprehensive risk management framework for Canada’s systemically important banks. This framework will be consistent with reforms in other countries and key international standards, and will work alongside the existing Canadian regulatory capital regime in order to reduce potential risk to taxpayers.
Enhancing the neutrality of the tax system by phasing out tax preferences in order to reduce tax distortions and improve the allocation of investment and capital within the Canadian economy.
Making the tax system simpler and improving taxpayer compliance.
Improving Canada’s system of international taxation through measures to combat tax evasion and aggressive tax avoidance and improve the integrity of the tax system.
Since 2006, the Government has lowered taxes, made Canada the first tariff-free zone for manufacturers in the Group of 20 (G-20), eliminated unnecessary regulatory burdens, and improved conditions for business investment. These steps have established a solid foundation that has allowed Canadian businesses to create jobs and drive economic growth. Economic Action Plan 2013 builds on this foundation by investing in initiatives that will:
Strengthen the competitiveness of the manufacturing sector and support small businesses.
Grow trade and investment.
Support responsible resource development.
Build on Canada’s financial sector advantage.
Keep taxes low for job-creating businesses.
These actions, together with initiatives to help Canadians connect with available jobs, introduce the new Building Canada plan, and invest in world-class research and innovation, including a new approach to support a vibrant venture capital market, will help ensure that manufacturers and businesses succeed in the global economy and continue to create jobs.
Manufacturers and processors are major contributors to the Canadian economy, both in terms of output and employment. These companies employ approximately 1.8 million Canadians in a wide range of industries across Canada, including aerospace, automotive, forestry, information and communications technologies, food processing, pharmaceuticals and shipbuilding, among others. A strong manufacturing sector also generates positive spillovers by stimulating the creation of jobs among suppliers and contributing to innovations across the economy.
In the past decade, the sector has responded to a changing economic environment, marked by a stronger Canadian dollar, a global economic and financial crisis, and the integration of emerging markets with strong manufacturing bases into the international economic system. Canadian manufacturers and processors have exhibited a remarkable capacity to adapt and meet these challenges. The sector’s real output has rebounded since the recession, and employment has stabilized in most manufacturing sub-industries. Moreover, investment per worker is rising as companies are updating their factories and taking advantage of the opportunities represented by advanced technologies (Chart 3.2.1).
Chart 3.2.1 Growth in Real Investment Per Worker in the Manufacturing SectorSource: Statistics Canada.
Today’s manufacturing requires constant innovation, the integration of new ideas and the adoption of up-to-date production processes. The highly competitive nature of the global economy and the growing complexity of manufacturing supply chains will further increase the importance of innovation and the development and diffusion of new technologies moving forward. Emerging markets such as China provide great opportunities for Canadian businesses, but they also pose challenges from sophisticated new competitors. Canadian manufacturers and processors must be prepared to respond.
Manufacturers have long been leaders in Canada in pursuing investment in research, development and technology as a core competitive strategy, and bringing innovative new products to market (Chart 3.2.2). Continued investment by manufacturers in innovation and other key productivity drivers, such as advanced machinery and equipment and skilled labour, is crucial to their long-term success. It is also necessary to improve Canada’s overall business productivity performance, a key element in our long-term prosperity.
Chart 3.2.2 Research and Development Performed by the Business SectorNote: Data for 2012. The information and communications technology sector comprises a subset of classification codes from industries included in other categories.
Source: Statistics Canada.
While manufacturers and processors are responsible for pursuing these investments and becoming more competitive, governments can play an important supporting role. Since 2006, the Government has advanced an economic agenda to help firms in all sectors to compete, grow and create high-paying jobs, including in the manufacturing and processing sector.
Since 2006, the Government has taken significant action to strengthen Canada’s overall business environment, benefitting firms in all sectors, including manufacturers and processors, as outlined below. The Government also provides targeted support to specific industries, including defence, aerospace, automotive and forestry, given their regional and economic importance.
Reducing the federal general corporate income tax rate to 15 per cent in 2012 from 22.12 per cent in 2007, eliminating the federal capital tax, and providing an incentive for provinces to eliminate their own general capital taxes (the last provincial general capital tax was eliminated in 2012). Canada now has an overall tax rate on new business investment that is the lowest in the G-7, and below the average for the member countries of the Organisation for Economic Co-operation and Development (OECD).
Increasing the capital cost allowance rate for manufacturing and processing buildings, and introducing a temporary accelerated capital cost allowance for manufacturing or processing machinery and equipment in Budget 2007.
Expanding the scope of the accelerated capital cost allowance for clean energy generation and conservation equipment so that a broader range of applications and technologies qualify for this measure, and extending this temporary incentive until 2020.
Eliminating more than 1,800 tariffs on imported machinery and equipment and manufacturing inputs, providing $450 million in annual tariff savings and making Canada the first tariff-free zone for industrial manufacturers in the G-20.
Providing $110 million per year through Economic Action Plan 2012 to double the budget of the Industrial Research Assistance Program (IRAP), in order to better support research and development by small and medium-sized firms, including in the manufacturing sector.
Helping small and medium-sized firms adopt digital technology and build digital skills through IRAP’s Digital Technology Adoption Pilot Program, announced in Budget 2011 with funding of $80 million over three years.
Strengthening industry-academic collaboration through ongoing support for programs including the Centres of Excellence for Commercialization and Research and the Business-led Networks of Centres of Excellence.
Launching the Venture Capital Action Plan in January 2013, including $400 million in new funding to increase private sector venture capital financing for high-potential innovative Canadian businesses.
Enhancing the availability of financing for business in all sectors, including manufacturing, through Export Development Canada and the Business Development Bank of Canada, to complement the private sector.
Strengthening Canada’s trade and investment relationships with key markets to foster new growth opportunities for export-oriented businesses, through the launch of Canada’s Global Commerce Strategy in Budget 2007.
Completing 22 new trade and investment agreements since 2006.
Strengthening the preferred access enjoyed by Canadian manufacturers to the U.S. market, which accounts for nearly 80 per cent of all domestic manufacturing exports, by launching the Canada-U.S. Action Plan on Perimeter Security and Economic Competitiveness and the Action Plan on Regulatory Cooperation in 2011.
Investing in public infrastructure that contributes to productivity and economic growth and supports the competitiveness of Canadian businesses through the $33-billion, 2007 Building Canada plan and infrastructure stimulus measures. These investments have helped modernize federal, provincial, territorial and municipal infrastructure assets including highways, bridges, trade corridor-related infrastructure, public transit and broadband. A core component of the plan, the Gas Tax Fund, was made a permanent source of federal infrastructure support in 2011.
Advancing the replacement of the Champlain bridge in Montreal and the construction of the Windsor-Detroit International Crossing to secure safe and efficient access to Canada’s busiest crossings, which are critical for the movement of goods to markets.
Supporting the development of highly qualified personnel and strengthening their industry-relevant experience, by providing an additional $35 million over five years in Economic Action Plan 2012 to double the number of applied research internships delivered under the Industrial Research and Development Internship Program.
Enhancing support for and access to skills training initiatives, including those that benefit skills development for the manufacturing sector, such as the Apprenticeship Job Creation Tax Credit, Apprenticeship Incentive Grant and Apprenticeship Completion Grant.
Responding to the immediate concerns of businesses regarding skills shortages by transitioning to a faster and more flexible economic immigration system, including the recent introduction of the new Federal Skilled Trades Program; refocusing the Federal Skilled Worker Program on recent, in-demand applicants; and supporting improvements to the foreign credential recognition system.
Building on this solid foundation, Economic Action Plan 2013 proposes additional measures in three key areas to support Canada’s manufacturing sector. Economic Action Plan 2013 proposes to: encourage further investment in capital and innovation by manufacturers and processors through significant tax relief on new manufacturing machinery and equipment; protect and create jobs by providing support to key manufacturing sectors to help them innovate and compete in the global economy; and create jobs by building more equipment in Canada for the Canadian Armed Forces.
Economic Action Plan 2013 proposes to provide $1.4 billion of tax relief to Canada’s manufacturing sector through a two-year extension to the temporary accelerated capital cost allowance for machinery and equipment.
In recognition of the ongoing uncertainty in the global economy, Economic Action Plan 2013 announces an extension of the temporary accelerated capital cost allowance for new investment in machinery and equipment in the manufacturing and processing sector for an additional two years. This will enable manufacturing and processing companies to plan and invest over the coming years and help create jobs in a sector that was particularly hard hit by the global recession.
Your Government has already implemented a number of policy measures that benefit Canada’s manufacturing sector and that have helped manufacturers recover from the worst downturn in world markets since the 1930s.
Lower government tax rates leave more money in the hands of business and help attract and retain investment and product mandates in Canada.
The second very important tax measure that your Government introduced in 2007 is the Accelerated Capital Cost Allowance (ACCA) for investments in manufacturing and processing machinery and equipment. It creates an incentive because manufacturers will lose these tax savings if they do not continue to invest. It also makes Canada a more attractive location for direct investment.
—Jayson Myers, President and Chief Executive Officer,
Canadian Manufacturers & Exporters
Chair, Canadian Manufacturing Coalition
Excerpt from a letter signed by more than 40 key stakeholders
Currently scheduled to expire at the end of 2013, the 50 per cent straight line depreciation rate will be extended for two years to include investment in eligible manufacturing or processing machinery and equipment in 2014 and 2015. By allowing a faster write-off of eligible investments, this measure provides concrete support to businesses in the manufacturing and processing sector to help them retool with new machinery and equipment to remain competitive in the current global environment.
For example, a manufacturer that purchases an eligible machine for $10,000 is able to deduct $2,500 in the first taxation year (because of the half-year rule, which requires that the asset be treated as if purchased in the middle of the taxation year), $5,000 in the second taxation year, and the remaining $2,500 in the third taxation year. In the absence of the temporary accelerated capital cost allowance, the machine would be depreciated at a 30-per-cent declining-balance rate, resulting in lower annual deductions from income over a much longer period of time (i.e., the depreciation period would be nine taxation years to deduct 95 per cent of the value of the machine).
The accelerated capital cost allowance (ACCA) for machinery and equipment used in the manufacturing and processing sector was first introduced in Budget 2007, and extended in Budget 2008, Budget 2009 and Budget 2011 in response to ongoing global economic challenges. The ACCA allows businesses to write off eligible investments faster, providing them with the support they need to retool and remain competitive. Canadian businesses from across the country have applauded the measure for helping them expand.
“Over the last three years, Canfor has invested more than half a billion dollars in our facilities, investments made possible in part by the progressive tax incentives afforded by accelerated write-off provisions....These types of progressive tax programs are a powerful and efficient means of improving Canada’s international competitiveness in manufacturing by continuing to incent investments in domestic manufacturing, increasing productivity and safeguarding high-paying, skilled jobs for Canadians.”
“In 2011 we purchased new equipment to manufacture plastic bottles for the beverage industry. This one new machine replaced two older machines; our efficiencies jumped and our scrap went down along with maintenance costs. The ACCA helped trigger the decision to upgrade equipment, which has made us more competitive in the market.”
“The ACCA has been an important support for our business strategy. In 2008 and 2009 manufacturing and the automotive industry were severely challenged; despite shrinking sales we began increasing our investment in equipment. These investments allowed us to be competitive internationally so that we could gain substantial sales to companies in Mexico, Europe and even China. This year we are building an addition which increases the size of our plant by a third and installing much larger equipment to further increase our competitiveness. We now have returned sales to peak levels with employment to match. The future for our company and employees is very bright. The ACCA is an important lever to keep our companies vibrant and competitive.”
“Since the introduction of the ACCA in 2007, AGS Automotive Systems and its sister company Tiercon have invested more than $20 million in state-of-the-art flexible manufacturing and advance composites technology. Of particular note, investment in a leading-edge front-end assembly process has delivered more efficient and flexible production, higher-quality products, and a more productive workforce of over 30 highly-trained employees with upgraded skills.”
“Our company has made significant investments in new production equipment over the past five years. The ACCA has been a critical factor in our decision to make these investments, providing cash flow when we needed it most, as the investments are made. Investment in new technology is critical for our business. At a time of considerable economic, financial, and market risk, the ACCA has been a welcomed tax incentive that has allowed us to strengthen our competitive position as a Canadian manufacturer.”
In total, more than 25,000 businesses in the manufacturing and processing sector that employ Canadians in all regions of the country have taken advantage of the accelerated capital cost allowance since it was first introduced in 2007. Extending the measure for two more years will help the manufacturing and processing sector to continue increasing its investment levels, which have been rebounding over recent years (Chart 3.2.3).
Chart 3.2.3Real Machinery and Equipment Investment
in the Manufacturing SectorSource: Statistics Canada.
Key stakeholders such as the Canadian Manufacturers & Exporters have identified support for investment in capital equipment and technologies as the top priority to increase efficiency and improve productivity. Extending the accelerated capital cost allowance for two additional years will help Canada’s manufacturing and processing sector to accelerate and undertake additional investment in advanced machinery and equipment. Adopting new and innovative technologies to increase productivity will allow businesses in Canada to meet current economic challenges and improve their long-term prospects, helping them to compete globally while creating jobs and growth in all parts of Canada.
This change is expected to increase support for the manufacturing and processing sector by $140 million in 2014-15 and a total of $1.4 billion over the 2014-15 to 2017-18 period.
The Government is also taking a number of targeted actions to foster the long-term competitiveness of key manufacturing industries, including defence industries, aerospace, automotive, shipbuilding and forestry, as well as the clean technology sector (see Chapter 3.4 under “Sustainable Development Technology Canada”).
Economic Action Plan 2013 proposes to provide $920 million over five years to renew the Federal Economic Development Agency for Southern Ontario.
To support economic growth in Southern Ontario, the Government created the Federal Economic Development Agency for Southern Ontario (FedDev Ontario) through Budget 2009. Since its inception, the Agency’s main program has supported 341 projects, playing an important role in developing and supporting a more productive, diversified and competitive economy. Notable initiatives supported by FedDev Ontario include the Canadian Manufacturers & Exporters’ SMART Program, which helps small and medium-sized manufacturers increase their productivity and competitiveness in the global economy.
Economic Action Plan 2013 proposes to provide $920 million over five years to renew the Agency’s funding, starting on April 1, 2014.
FedDev Ontario will also continue to promote business development, job creation and self-reliant communities in rural Eastern Ontario by extending the Eastern Ontario Development Program for five years.
The Government will also amend the Salaries Act to establish ministerial positions in law for the regional development agencies serving Northern Canada, and Northern and Southern Ontario. These amendments will ensure that all of Canada’s regional development agencies are on the same footing in terms of ministerial positions.
Economic Action Plan 2013 proposes to provide $200 million over five years for a new Advanced Manufacturing Fund, to be delivered by the Federal Economic Development Agency for Southern Ontario as part of its renewed funding.
Manufacturers in Ontario must increasingly seek to become more competitive by investing in innovation and moving up the value chain. Firms in manufacturing sectors including information and communications technologies, life sciences, machinery and equipment, and sophisticated niche sectors, are pursuing competitive advantage through the development of transformative products and technologies that open and expand markets, increase efficiency and improve our quality of life. The investments made by these firms create high-paying jobs and contribute to strong economic growth.
To support the efforts of advanced manufacturers in Ontario to become more competitive, Economic Action Plan 2013 proposes to provide
$200 million over five years for the creation of an Advanced Manufacturing Fund. The new Fund would support investments by manufacturing firms in activities that create new and innovative products or production methods, such as prototyping, demonstration projects and advanced product testing, and will be delivered by the Federal Economic Development Agency for Southern Ontario as part of its renewed funding. Fund parameters will be based on consultations with stakeholders and will be announced in the coming months.
Building on the success of the National Shipbuilding Procurement Strategy, the Government will better ensure that purchases of military equipment create economic opportunities for Canadians by developing key domestic industrial capabilities to help guide procurement, by promoting export opportunities, and by reforming the current procurement process to improve outcomes.
Canada’s defence spending aims at providing the Canadian Armed Forces with high-quality equipment in order to defend our national sovereignty and vital interests. Simultaneously, these investments can provide Canada with a stronger manufacturing base with a capacity for leading-edge technology and innovation. The potential benefits for the Canadian economy are significant.
In Budget 2011, the Government committed to develop a procurement strategy in consultation with industry to maximize job creation, support Canadian manufacturing capabilities and innovation, and bolster economic growth in Canada. The Government is making important progress in the development of its strategy for procuring equipment for our military.
In September 2012, Mr. Tom Jenkins, Executive Chairman and Chief Strategy Officer of OpenText Corporation, was appointed as a special advisor to further inform this work. Mr. Jenkins was asked to engage a range of stakeholders involved in Canada’s defence-related industries with a view to establishing criteria and a process to identify key Canadian industrial capabilities. Mr. Jenkins presented his report on February 12, 2013. The report frames the unique “once in a century” opportunity presented by major investments in Canada’s Armed Forces to create jobs and economic growth, while enhancing Canada’s ability to protect its sovereignty.
As noted in Mr. Jenkins’ report, many of the most highly industrialized countries have clear strategies to promote their defence sectors. These strategies are based on a recognition that it is in the national interest to have a strong domestic defence-related manufacturing base that produces leading-edge equipment. For Canada, such a strategy can generate high-value exports and support high-paying jobs for Canadians.
The Government endorses Mr. Jenkins’ proposal to use key industrial capabilities as a means of fully leveraging defence procurement projects to support economic opportunities for Canadians. A key opportunity for doing so is by targeting, as estimated by Mr. Jenkins, the $49 billion in Industrial and Regional Benefits obligations that foreign prime contractors are expected to accumulate by 2027 to support high-skill and high-value opportunities and jobs in Canadian industries. These opportunities would be selected based on the needs of the Canadian Armed Forces, the potential to access global markets, and the potential for increasing investments in Canadian research and innovation. In addition, the Government will actively promote the significant export opportunities for Canadian-produced goods and services.
To better leverage future investments in equipment for the Canadian Armed Forces, the Government will work with industry sectors and stakeholders such as the Canadian Association of Defence and Security Industries to identify areas of Canadian competitiveness, as well as trends in global demand and supply in defence-related industries. Further, the Government will ensure that all major procurements include a plan for participation by Canadian industry, prior to approving the project.
This Spring, the Government will expedite the analysis of the recommendations made by Mr. Jenkins with respect to selecting a series of interim key industrial capabilities to help guide immediately pending defence procurement projects. The Government will also develop a refined set of key industrial capabilities for use over the long term and examine how existing policies and programs can be tailored to support a Government-wide strategy while remaining cognizant of Canada’s international trade obligations. In parallel, the Government will reform the current procurement process to improve outcomes. This will include thorough and rigorous option analyses, a challenge function for military requirements, early and frequent industry engagement, and strengthened oversight with the use of third-party expertise.
The Jenkins report, Canada First: Leveraging Defence Procurement Through Key Industrial Capabilities, highlighted the following examples of the Government using the purchase of equipment for the Canadian Armed Forces to create jobs and economic growth in Canada:
Founded in 1947 and headquartered in Montreal, CAE entered the simulation business in 1952 with a contract from the Royal Canadian Air Force to develop a CF-100 flight simulator. In 2009, CAE was awarded a contract to provide the training systems and services for Canada’s tactical airlift, medium-to-heavy helicopter, and potentially other aircraft fleets.
Since its inception, CAE has sold more than 1,300 simulators and flight training devices to civil and military customers, growing its revenues to $1.8 billion in 2012. Today, it sells its products and services in over 190 countries and employs more than 8,000 people. CAE is the world leader in simulation equipment, commercial aviation training, helicopter aviation training, military virtual air training, and health care simulation technology.
General Dynamics Land Systems Canada (GDLS-C), based in London, Ontario, is a world leader in the design, manufacture and support of wheeled Light Armoured Vehicles and a multi-billion dollar firm with over 2,300 highly skilled employees.
As a result of procurements and related support from the Government of Canada, GDLS-C has generated direct sales of Light Armoured Vehicles in excess of $17 billion over the last 35 years or so, has created approximately 500,000 person-years of employment in Canada, and has established a supplier base of over 400 Canadian companies located in every province.
Weatherhaven is a 30-year-old Vancouver shelter company that has provided redeployable temporary camp solutions to the Canadian Armed Forces since 1989. Building on its Arctic mining camp heritage, Weatherhaven was able to develop unique container-based camp solutions in close collaboration with the Department of National Defence. These solutions, used for everything from portable field hospitals to command centres, have been deployed on every Canadian peacekeeping and disaster relief mission since 1989.
Foreign missions became showcases for Weatherhaven’s unique solutions, enabling the company to introduce their products and develop customers in many emerging markets. Weatherhaven has sold about 200 of its patented Mobile Expandable Containers to the Canadian Armed Forces over the past 15 years, and more than 2,500 of this Canadian-developed product to military customers around the world.
The $35-billion National Shipbuilding Procurement Strategy, announced in 2010, means jobs and economic growth for the country, stability for the industry, and vital equipment for the men and women of the Royal Canadian Navy and Canadian Coast Guard. Shipyard capabilities are being upgraded on the east and west coasts, and industry engagement will continue to be a key factor as the designs and contracts are prepared.
The Government announced significant progress on shipbuilding with the awarding of contracts to Vancouver Shipyards Co. Ltd. and Irving Shipbuilding Inc. These contracts include the design definition work on new Offshore Fisheries Science Vessels for the Canadian Coast Guard, which will begin construction in 2014, and on the Arctic/Offshore patrol ships, which will begin construction in 2015.
Over the next 30 years, the Canadian Association of Defence and Security Industries estimates that 15,000 direct and indirect jobs may result from National Shipbuilding Procurement Strategy projects, involving skilled work in a variety of sectors including steel manufacturing, information technology and defence systems. Through the Atlantic Shipbuilding Action Plan and the Western Canada Shipbuilding Action Plan, the Government is helping small and medium-sized enterprises to participate in the supply chains that will result from these projects, creating growth and jobs throughout the regions.
The Government of Canada acts as a first user of pre-commercial innovations through the Canadian Innovation Commercialization Program (CICP). Through CICP, federal departments test prototypes developed by Canadian businesses and provide feedback to help improve these innovative products before they are marketed to customers. This program is particularly useful for small and medium-sized enterprises, which often find it difficult to find the resources to bring innovative products to market.
Participating companies have been strongly supportive of CICP since it was launched in 2010. Economic Action Plan 2012 committed to making CICP permanent, and announced that a military component would be added to the program.
Early examples of success include CVT Corporation, a small company from Quebec, which has developed an innovative technology that offers significant fuel savings, lower emissions and reduced noise levels when incorporated into equipment used in a number of sectors. The company has attracted considerable private sector interest in this technology following testing by Parks Canada in National Parks across Canada.
Another example is Virtual Marine Technology Incorporated, a company with locations on the Atlantic and Pacific coasts, which developed simulator technology that helps in the training of search and rescue personnel in scenarios that are too expensive, rare or dangerous to replicate in an on-water scenario. The company received orders for its marine training simulator, based in part on the Canadian Coast Guard having been a first user of the product.
The Government will officially launch the military component of the program in the near future.
Canada’s aerospace sector is a global technology leader and a major source of high-quality jobs, directly employing 66,000 people across the country, and is among the most research-intensive industries in Canada. Budget 2011 announced the launch of a comprehensive review of all policies and programs related to the aerospace and space industries, in consultation with the Aerospace Industries Association of Canada, in order to develop a federal policy framework to maximize the competitiveness of this export-oriented sector and the resulting benefits to Canadians.
The Honourable David Emerson, Head of the Aerospace Review, delivered his final report to the Minister of Industry on November 29, 2012. Following extensive consultations across Canada and in leading aerospace jurisdictions, the Aerospace Review report sets out long-term goals for the aerospace and space sectors, identifies challenges and opportunities, and outlines roles for industry, the Government of Canada and other key stakeholders going forward. The report includes a number of important recommendations, including with respect to support for large-scale aerospace technology demonstration projects, improving the effectiveness of the Strategic Aerospace and Defence Initiative, implementing a full cost-recovery model for aircraft safety certifications, and improving space program governance and oversight frameworks.
The Honourable David Emerson, Head of the Aerospace Review, delivered his final report to the Minister of Industry on November 29, 2012. The report detailed a series of recommendations aimed at strengthening the aerospace and space sectors in Canada. Key recommendations include:
Creating an aerospace technology demonstration program; maintaining funding for the Strategic Aerospace and Defence Initiative at existing levels and modifying the initiative’s terms to stimulate the development of next-generation technology projects; establishing a list of priority technologies to guide aerospace policies and programs; and creating a technology research network to foster greater research collaboration among aerospace stakeholders.
Launching new initiatives aimed at strengthening the Canadian aerospace supply chain, to be co-funded with private sector stakeholders including small and medium-sized firms, and larger original equipment manufacturers.
Forging new partnerships with emerging aerospace players to strengthen growth opportunities for Canadian aerospace firms; clarifying restrictions on government support for aerospace firms; reviewing export and domestic control regimes to ensure they are not overly restrictive; and implementing a full cost-recovery model for aircraft safety certification activities.
Using federal skills training programs, in collaboration with relevant stakeholders, to promote the study of science and technology disciplines and aerospace and space careers; creating new initiatives to support the skills training efforts of private aerospace firms; and co-funding the purchase and maintenance of aerospace research and training infrastructure with provincial governments, research and academic institutions, and private firms.
Implementing new guidelines for firms wishing to participate in government procurement competitions for aircraft and aerospace-related equipment, by requiring firms to include a detailed industrial and technological benefits plan in their submissions, and to partner with one other Canadian firm offering related support activities.
Developing a series of strategic plans outlining the Government’s space priorities over the short, medium and long term; establishing a Canadian Space Advisory Council to advise the Government on the development of these plans; stabilizing the budget of the Canadian Space Agency over the next 10 years and establishing cost-sharing models to support the development of new space projects; and implementing measures to expand the level of space-related commercial activity in Canada.
The Government is carefully reviewing the advice of the Aerospace Review, and will take action over the coming year to improve the focus and coordination of programs and practices of relevance to the aerospace and space sectors. Through Economic Action Plan 2013, the Government proposes to take early action in response to the Aerospace Review in the following areas.
The Government will provide stable funding of close to $1 billion over five years for the Strategic Aerospace and Defence Initiative and review the administration and operation of the program over the coming year to improve its effectiveness.
The largest aerospace-specific innovation support program is the permanent Strategic Aerospace and Defence Initiative (SADI), which provides repayable contributions to support strategic innovative projects by aerospace, space, defence and security companies. Since its launch in 2007, SADI has authorized $826 million in assistance to 25 projects, of which $411 million has been disbursed to date. SADI encourages research and development leading to innovation and new products and services, contributes to enhancing the competitiveness of Canadian companies in the aerospace and defence sector, and fosters collaboration between research institutes and the private sector. The Aerospace Review identified a number of ways in which SADI could be strengthened and better achieve its objectives.
Economic Action Plan 2013 announces the Government will continue to provide stable funding for SADI, close to $1 billion over five years, and will review the program’s administration and operation over the coming year to ensure that it continues to respond to the needs of this dynamic sector.
The Strategic Aerospace and Defence Initiative was established in 2007 to encourage strategic research and development projects, enhance the competitiveness of Canadian aerospace and space companies, and foster collaboration between research institutes, universities, colleges and the private sector. Some of the projects supported to date by SADI include:
$7.7 million to ASCO Aerospace Canada (Delta, British Columbia) to support innovative manufacturing technologies to produce aircraft bulkheads and specialized metal components.
$2 million to AeroMechanical Services Ltd. (Calgary, Alberta) to support research and development of next-generation data communication systems for commercial and military aircraft.
$43.4 million to Bristol Aerospace Limited (Winnipeg, Manitoba) to support new processes for composite manufacturing and complex assemblies that incorporate both composite and metallic components.
$9.7 million to BelAir Networks Inc. (Ottawa, Ontario) to support research and development of wireless networking technologies that will improve defence industry communications.
$250 million to CAE Inc. (Montreal, Quebec) for the development of innovative aircraft simulator systems.
$300 million to Pratt and Whitney Canada (Longueuil, Quebec) to support research leading to lighter aircraft engines with more power, better fuel consumption and improved durability.
Economic Action Plan 2013 proposes to provide $110 million over four years, beginning in 2014-15, and $55 million annually thereafter, for the creation of an Aerospace Technology Demonstration Program, to be partly funded from the Strategic Aerospace and Defence Initiative.
Technology demonstration represents a critical phase in the commercialization of new aerospace products. Demonstration activities involve moving new technologies out of the laboratory, in order to test them in real-world settings to ensure that they fulfil their intended use in a safe and efficient manner. The Aerospace Review recommended that the Government provide support for large-scale technology demonstration projects as companies often find it difficult to finance this step, forcing them to abandon promising innovations. According to the Review, the lack of financing for demonstration of new technologies negatively affects the performance of the Canadian aerospace industry due to lost business opportunities.
Responding to this recommendation, Economic Action Plan 2013 proposesto provide $110 million over four years, beginning in 2014-15, and$55 million per year on an ongoing basis thereafter, for the creation of an Aerospace Technology Demonstration Program. The program will support large-scale technology projects that exhibit strong commercialization potential and promote cross-industry collaboration, including simulation trials, systems integration testing and refinement activities. A component of the program will support research costs at post-secondary institutions that serve wider industry needs. As recommended by the Aerospace Review, a portion of these resources, rising to $20 million annually, will be reallocated from the Strategic Aerospace and Defence Initiative.
The Government will also launch consultations in the coming months regarding the creation of a National Aerospace Research and Technology Network, to be led by Industry Canada in collaboration with relevant stakeholders. The Network would engage stakeholders in industry, post-secondary institutions and government laboratories to identify strategic technology areas and facilitate collaborative research and development.
The Government will review cost-recovery rates for aircraft safety certification to ensure the National Aircraft Certification program can respond to growth in demand for certifications.
The National Aircraft Certification program, administered by Transport Canada, reviews and approves more than 1,500 new and modified aeronautical products built or operated in Canada each year. Aerospace firms require both timely and affordable certification services to compete globally and the demand for product certifications is expected to grow in coming years as new aircraft models come into service. At present, fees charged for certifications recover only a small portion of the cost of these services, making expansion of these services to keep up with demand a potentially costly proposition for taxpayers. Economic Action Plan 2013 commits to review cost-recovery rates for aircraft safety certification to ensure the National Aircraft Certification program can deal with growth in demand for certifications efficiently, while keeping the program affordable for both taxpayers and aerospace firms.
The Government is reviewing its policies and programs specific to the space sector to better support Canada’s space capabilities.
Canada’s space industry is a sophisticated research and innovation leader, successfully turning investments in knowledge into a global advantage in several niche areas, including robotics and satellite communications. Canada’s space capabilities will be showcased through the ongoing development of the RADARSAT Constellation Mission, for which a $706-million satellite construction contract has recently been signed with MacDonald, Dettwiler and Associates. Canada’s leading role in space is also demonstrated through continued participation in the International Space Station mission, and the command of Expedition 35 of the Station by Canadian astronaut Chris Hadfield. The Aerospace Review has made important recommendations with respect to policies and programs specific to the space sector. The Government is currently examining these recommendations carefully.
The automotive industry is among Canada’s leading employers and exporters, and is a key driver of our economy, valued at $16 billion per year and directly employing more than 115,000 Canadians from automotive assembly to parts production.
The Automotive Innovation Fund (AIF) was established in Budget 2008 with $250 million over five years to provide repayable contributions to automotive firms that are undertaking strategic, large-scale research and development projects focused on innovative, greener and more fuel-efficient vehicles (see below). In January 2013, the Government announced the renewal of the AIF with a further $250 million over five years, beginning in 2013-14.
The AIF supports strategic, large-scale research and development projects in the automotive sector. Projects supported to date include:
Ford Canada’s establishment of a new flexible engine assembly plant in Windsor, as well as support for research on engine efficiency and new fuel technologies, with an AIF contribution of up to $80 million.
Linamar Corporation’s development of green and fuel-efficient automotive powertrains, with $55 million in AIF funding.
Toyota Motor Manufacturing Canada’s Project Green Light, which includes the production of the RAV4 electric vehicle at Toyota’s West Plant in Woodstock, with support from the AIF of over $70 million.
Magna International’s development of clean vehicle technologies, including energy-efficient components and innovative powertrain parts for next-generation vehicles, with AIF support of $22 million.
Toyota Motor Manufacturing Canada’s construction of a new blended assembly line that will permit the production of both the current Lexus model and the hybrid model, with an AIF contribution of $17 million.
The Government has also helped to strengthen the competitiveness of Canada’s automotive firms through:
Its decisive action to support the restructuring of General Motors and Chrysler during the economic downturn, in collaboration with the Governments of Ontario and the United States. It is estimated that 52,000 Canadian jobs were protected by government action.
Support for innovative research and development through AUTO21, a Network of Centres of Excellence, which will have provided over $81 million for industry-relevant research by 2015.
Investment in leading-edge research infrastructure, including $14 million through the Knowledge Infrastructure Program for the Automotive Centre of Excellence at the University of Ontario Institute of Technology, a world-class severe climate testing facility.
Support for collaborative research and development activities of benefit to the Canadian automotive industry through Automotive Partnership Canada, a collaboration of five federal agencies, with a budget of $145 million over five years (see below).
Automotive Partnership Canada was launched in 2009 to support significant, collaborative research and development activities that benefit the entire Canadian automotive industry. Funding under this initiative to date includes:
$2.9 million to support the development of next-generation green technologies promising to end truck idling and cut emissions. This project involves researchers and students from Simon Fraser University and the University of Waterloo, along with a number of industrial partners.
$2.1 million toward a comprehensive five-year study examining options for strengthening Canada’s automotive industry. This study will be performed by professors and graduate students from McMaster University, the University of Toronto and Queen’s University as well as industry partners, including Toyota Motor Company of Canada and Ford Motor Company of Canada.
Economic Action Plan 2013 proposes to provide $92 million over two years starting in 2014-15 to continue support for forestry innovation and market development.
Forestry is an important contributor to the local economies of communities across Canada, directly and indirectly employing approximately 600,000 people.
To adapt to a changing economic landscape, the forestry sector is transforming its business model by emphasizing the development of innovative products and expanding into new markets.
The Government has announced significant support to help the forestry sector become more competitive, including the $1-billion Pulp and Paper Green Transformation Program launched in 2009 and the Investments in Forest Industry Transformation Program announced in Budget 2010. Most recently, Economic Action Plan 2012 provided $105 million over two years for a suite of forest innovation and marketing programs delivered by Natural Resources Canada.
Economic Action Plan 2013 proposes $92 million over two years beginning in 2014-15 to continue this support for the transformation of the forestry sector. The Government will continue to work with the forestry industry as it leads the way in increasing its investments in innovation and developing new markets for Canadian forestry products.
The forestry sector is an important contributor to the Canadian economy, forming the economic base in many regions. Canada’s forest product companies have encountered some challenges in recent years including intense competitive pressures, an appreciating Canadian dollar and fluctuating demand from the U.S. housing market.
Since 2010, the Government has put in place significant measures to help the forestry sector address these challenges and become more competitive. These include:
Investments in Forest Industry Transformation (IFIT): announced in
Budget 2010 with funding of $100 million over four years, IFIT assists Canada’s forestry sector in becoming more competitive and environmentally sustainable, by supporting projects that use new technologies to create non-traditional high-value forest products and renewable energy. For example, through the IFIT Program, the Government provided $4.5 million to Alberta-Pacific Forest Industries Inc. (Al-Pac), a pulp mill, to help it implement a world-first, Canadian-developed technology, the Methanol Purification System. The System enables Al-Pac to extract a very pure form of bio-methanol from its pulp mill waste streams. This bio-methanol replaces conventional methanol used in the pulp mill, and excess quantities can be sold as a green alternative to traditionally derived methanol.
Forestry Marketing and Innovation: Economic Action Plan 2012 provided $105 million over two years, starting in 2012-13, for the Forest Innovation Program and the Expanding Market Opportunities Program. The Forest Innovation Program helps forestry companies innovate and adopt emerging technologies.
The Expanding Market Opportunities Program is helping to expand export opportunities for forestry companies in traditional as well as emerging offshore markets such as Europe, China, India and the Middle East. Over the last five years, federal efforts to open up new markets for forestry products have resulted in a 10-fold increase in softwood lumber exports to China and a 38-per-cent increase in exports to South Korea. These efforts have resulted in re-opened mills and new jobs in many Canadian forestry communities.
Small business owners understand the importance of the Government’s focus on eliminating the deficit and returning to balanced budgets by
2015-16. In fact, a return to budgetary balance by controlling growth in direct program spending is identified as a key priority by the small business owners that are members of the Canadian Federation of Independent Business.
For the 2013 budget, CFIB members are asking government to do everything possible to balance the budget as quickly as possible. Small companies have learned the hard way that today’s deficits are tomorrow’s taxes and that ensuring the country’s books are in order is crucial to future economic success.
—Dan Kelly, President and Chief Executive Officer,
Canadian Federation of Independent Business
Since 2006, the Government has taken significant action to ensure that a sustainable fiscal situation and a competitive business tax system are in place to create an environment that encourages new investment, growth and job creation, and to ensure that Canada has the strongest fiscal position and the lowest business tax costs in the G-7.
KPMG’s recently released study, Competitive Alternatives 2012, concluded that Canada’s total business tax costs—corporate income tax, capital taxes, sales taxes, property taxes and wage-based taxes—are more than 40 per cent lower than those in the United States.
The Government has already delivered significant tax relief to small businesses and small business owners. Following the return to balanced budgets, the Government will examine ways to provide further tax relief for Canadians and businesses, including for small businesses.
Tax measures introduced by the Government are already delivering substantial tax relief to small businesses and small business owners.
Reductions in the small business tax rate to 11 per cent and increases in the small business income limit to $500,000 are estimated to be providing small businesses with more than $2 billion in tax relief in 2013 and more than $10.4 billion in tax relief over the 2008–09 to 2013–14 period.
For example, a small Canadian-controlled private corporation with $500,000 in taxable income has seen its federal corporate tax bill decline by more than one-third, from $83,600 in 2006 to $55,000 in 2013, a tax savings of $28,600 that can be reinvested in the business to fuel the growth and expansion that can create new jobs.
Chart 3.2.4Federal Corporate Income Tax Paid by a Small Canadian-Controlled Private Corporation with $500,000 of Taxable Income
The Lifetime Capital Gains Exemption (LCGE) on qualified small business shares was increased to $750,000 from $500,000 in Budget 2007, the first increase in the exemption since 1988. The LCGE is estimated to be delivering almost $1 billion of federal tax relief annually to small business owners, farmers and fishermen. Economic Action Plan 2013 proposes to increase the LCGE to $800,000 and index the new limit to inflation.
To build on the strong foundation of ongoing federal support to small businesses, Economic Action Plan 2013 introduces additional targeted tax assistance to support this important sector.
Economic Action Plan 2013 proposes to expand and extend the temporary Hiring Credit for Small Business.
The Government’s number one priority is creating jobs. In recognition of the important role that small businesses play as job creators in the Canadian economy, Economic Action Plan 2013 proposes to expand and extend for one year the temporary Hiring Credit for Small Business. This temporary credit would provide up to $1,000 against a small firm’s increase in its 2013 Employment Insurance (EI) premiums over those paid in 2012 to employers with total EI premiums of $15,000 or less in 2012. This temporary credit would be available to an estimated 560,000 employers, allowing these small businesses to reinvest approximately $225 million in job creation in 2013.
The EI hiring credit has been very well received by SMEs [small and medium-sized enterprises] in general but especially those that have shown a desire to grow their operations.
Charles and Cole own a small automobile repair shop. They had 12 employees in 2012 and a total payroll of $549,120. Their total EI premiums in 2012 were $14,057. In 2013, they decide to hire an additional mechanic to handle an increase in business from new customers. This brings their total payroll costs to $594,880 in 2013 and their total EI premiums to $15,645. The Hiring Credit for Small Business would provide them with a credit of $1,000 in recognition of the increase in their 2013 EI premiums over those paid in 2012.
The Canada Revenue Agency will automatically calculate the Hiring Credit when Charles and Cole file their 2013 tax return. They do not need to apply, avoiding any red tape and needless delays.
Economic Action Plan 2013 proposes to increase the Lifetime Capital Gains Exemption to $800,000 and index the new limit to inflation.
In recognition of the importance of small business owners, farmers and fishermen, Economic Action Plan 2013 proposes to increase the Lifetime Capital Gains Exemption (LCGE) to $800,000 from $750,000. This new limit will apply to dispositions in 2014 of qualified small business corporation shares, and qualified farm and qualified fishing property.
Small business owners, farmers and fishermen are key contributors to creating jobs and economic growth. Among the many ways that Canada’s income tax system supports these entrepreneurs is the LCGE. By providing a tax exemption on up to $800,000 of capital gains realized in 2014 on the disposition of qualified small business corporation shares, and qualified farm and qualified fishing property, the LCGE increases the potential rewards of investing in small business, farming and fishing. The exemption also helps these entrepreneurs better ensure their financial security for retirement, and facilitates the intergenerational transfer of their businesses. Budget 2007 increased the LCGE to $750,000 from $500,000, the first increase in the exemption since 1988.
In addition, to ensure that the real value of the LCGE is not eroded over time, Economic Action Plan 2013 proposes to index the $800,000 LCGE limit to inflation for the first time ever. The first indexation adjustment will occur for the 2015 taxation year.
It is estimated that these measures will provide federal tax relief of $5 million in 2013-14 and $15 million in 2014-15.
The following examples illustrate how a business owner may benefit from the $50,000 increase in the Lifetime Capital Gains Exemption (LCGE) to $800,000 in 2014 and the indexation of the new limit.
Li owns a number of businesses in Vancouver. He has already fully used up his $750,000 LCGE. Li decides to sell his grocery store in 2014, and realizes a capital gain of $250,000. He is able to take advantage of the $50,000 increase in the maximum LCGE, thereby receiving up to $7,250 in federal tax relief.
John and Dava own a grain farm south of Saskatoon. In 2014, they sell the farm and each realizes a capital gain on qualified farm property of $800,000, for a total capital gain of $1.6 million. The $50,000 increase in the maximum LCGE allows John and Dava to each receive up to an additional $7,250 in federal tax relief, for total additional federal tax relief of $14,500 for the couple.
Xavier is a successful small business owner in Québec City. He plans to retire in 15 years and sell his business. He currently has an unrealized capital gain of $750,000 from the growing business. With the $50,000 increase in the maximum LCGE in 2014 and assuming an annual inflation rate of 2 per cent going forward, Xavier will have an additional $305,000 in LCGE room available when he sells the business, thereby potentially benefiting from additional federal tax relief of more than $44,000 at today’s tax rates.
Tax support for small business has been complemented by a range of program initiatives, big and small, that are providing ongoing support to new and growing businesses. For example:
$3 million per year of ongoing funding to BizPaL is helping reduce the red tape burden on small business owners by allowing them to quickly and efficiently create a tailored list of permits and licences from all levels of government necessary to operate their specific businesses.
Economic Action Plan 2012 doubled the budget of the Industrial Research Assistance Program, which supports innovation by small and medium-sized companies.
The Government has also taken significant actions to increase access to capital for small businesses, including the creation of the Vehicle and Equipment Financing Partnership to support vehicle and equipment financing for smaller companies. In January 2013, the Government also launched the Venture Capital Action Plan to deliver on the commitment to make available $400 million to support a sustainable private sector-led venture capital sector, increasing the capital available to fuel the growth of innovative high-potential companies.
Economic Action Plan 2013 builds on this strong foundation of support to small business by developing a stronger institutional and cultural framework to support new and growing businesses, by:
Strengthening support for research and development and promoting venture capital (see Chapter 3.4).
Addressing skills shortages by equipping Canadians with the skills and training they require to obtain high-quality, well-paying jobs
(see Chapter 3.1).
The Government remains resolute in its commitment to eliminate unnecessary red tape from Canada's regulatory system, while maintaining Canada's high standards for safety and protection. The One-for-One Rule and other Red Tape Reduction Action Plan reforms are bringing a new discipline to how the Government regulates and creating a more predictable environment for businesses.
On October 1, 2012 the Government, working with the Canadian Federation of Independent Business, announced its Red Tape Reduction Action Plan, an ambitious approach to reducing red tape through a combination of system-wide reforms and targeted action on issues that were frustrating businesses and stifling innovation. In addition to actions by individual Ministers, the Government is already implementing the One-for-One Rule; and it is working. Regulators now have to provide red tape relief for businesses equal to any new burden they introduce. As well, whenever a new regulation is introduced that imposes a red tape burden, an existing regulation must come off the books. Since April 2012, when it entered into force, nine regulations have been repealed under the One-for-One Rule, resulting in the avoidance of $3.3 million in administrative burden on businesses.
The Government's sustained approach to reducing the administrative burden associated with the tax system is focused on collecting revenue in a fair and efficient manner, while imposing the smallest possible compliance burden on businesses. In PricewaterhouseCoopers’ 2013 international study analyzing the ease of paying taxes, Canada was the only country in the G-7 to rank among the top 10 countries based on the overall ease of complying with tax obligations. PricewaterhouseCoopers came to the conclusion that a business in Canada takes 25 per cent less time per year than a business in the United States to prepare, file and pay their taxes.
Economic Action Plan 2013 announces Canada Revenue Agency actions that reduce red tape and improve services for small businesses.
As part of its red tape reduction efforts, the Canada Revenue Agency (CRA) has created a dedicated team that is responsible for coordinating and addressing small business issues. The CRA has mandated the team to ensure that the Agency takes a “small business lens” approach to service improvements, with a renewed and enhanced focus on cutting red tape. This focus on engagement with small business stakeholders is ensuring that the perspectives of the small business community are continuously taken into account in the CRA’s work.
Economic Action Plan 2012 announced that the CRA would implement an on-line enquiries service in April 2012, and the CRA has already responded in writing to over 4,500 requests submitted through My Business Account. A wide range of additional electronic services for businesses are being implemented, to build on this success and help businesses get what they need faster, reduce paper work, save time, and help the environment. For example, effective April 2013, business owners can choose to go paperless and rely exclusively on electronic notices stored in the secure My Business Account portal, accompanied by email reminders from the CRA.
Collaboration with provincial and municipal governments is rapidly making the CRA’s Business Number the common identifier for federal, provincial and municipal government interactions with businesses. The CRA has forged partnerships and working relationships involving six provinces and this Spring Winnipeg will become the first municipality to adopt the Business Number for its programs. The Business Number makes it easier to register, eliminates duplicate accounts and errors, and enables integrated online services (such as a change of address) across federal, provincial and municipal governments.
The CRA is undertaking several initiatives to reduce the tax compliance burden associated with the Scientific Research and Experimental Development (SR&ED) tax incentive program. In particular, a pilot project to determine the feasibility of a Formal Pre-Approval Process for SR&ED claims was just launched. This pilot project will provide valuable information on whether a Formal Pre-Approval Process service would be an effective way to provide greater certainty to claimants on the eligibility of their research and development expenditures for SR&ED tax incentives.
The CRA is also expanding its small business focus across all operations, and is moving towards a “tell us once” approach, so that small businesses will not have to submit the same information several times. The CRA is helping small business owners avoid costly and time consuming audits by raising awareness of their tax obligations in order to help them to get it right from the start.
On January 21, 2013, the Honourable Gail Shea, Minister of National Revenue, unveiled the introduction of “Agent ID”, a new addition to the CRA’s business enquiries telephone service. This initiative responded to a request from the Canadian Federation of Independent Business to increase accountability for business calls to the CRA, and call centre agents now provide businesses with their first name, agent identification number, and a regional suffix.
Effective April 2013 the CRA will make the approval process more timely and responsive for the authorization of a third party (e.g., an accountant, lawyer or employee) to conduct business tax matters with the CRA on behalf of the business owner. Based on feedback obtained during consultations related to the work of the Red Tape Reduction Commission, the CRA will improve its service standard from the current 14 working days to 5 days as an interim step pending the development of additional on-line options planned for April 2014. In addition, the CRA is announcing that it will immediately take a proactive approach to phone contact in cases where applications for the authorization of third parties are either incomplete or contain discrepancies.
The CRA’s sustained approach to reducing red tape was recognized in January, when the Honourable Gail Shea, Minister of National Revenue, was awarded the Canadian Federation of Independent Business’ Golden Scissors Award for introducing measures that improve services and reduce the burden placed on small businesses.
The Code of Conduct for the Credit and Debit Card Industry in Canada came into effect in August 2010. The Code’s purpose is to promote fair business practices and ensure that small business owners and consumers clearly understand the costs and benefits of credit and debit cards. With the release of the final report of the Task Force for the Payments System Review, the Government committed to review and update the Code to ensure its principles of transparency, fairness and competition are upheld in a mobile payments environment. In consultation with industry, merchant and consumer groups, the Government developed an addendum to the Code that addresses mobile payments and released it for public consultation in September 2012. The Government is working to finalize and release the addendum as soon as possible.
Budget 2010 announced the Government’s intention to create the Task Force for the Payments System Review (Task Force) to review the safety, soundness and efficiency of the payments system; whether there is sufficient innovation in the system; the competitive landscape; whether businesses and consumers are being well served by the current payments system providers; and whether the existing payments system oversight mechanisms remain appropriate.
In March 2012, the Government released the final report of the Task Force and committed to take three priority actions:
Establish a senior-level consultative committee made up of public and private sector stakeholders to meet regularly with Department of Finance officials to discuss emerging payments system issues. In the Fall of 2012, the Department launched the Finance Canada Payments Consultative Committee comprised of stakeholders, including payment card network operators, financial institutions and merchant and consumer groups that broadly represent the payments system.
Update the Code of Conduct for the Credit and Debit Card Industry in Canada so that the principles of transparency, fairness and competition would guide the evolution of mobile payments in Canada (see above).
Review the governance framework for the payments sector, including the Canadian Payments Association, to ensure the continued safety and soundness of the payments system, alongside its ability to spur innovation, and to promote the consideration of user interests. The Department of Finance, in close collaboration with the Bank of Canada, is currently conducting research and analysis and has sought input from stakeholders on priorities for this review.
Trade and foreign investment are major engines of economic growth. Canada relies on open markets as a source of opportunity and a stimulus to efficiency, which in turn contributes to economic growth and rising incomes. Openness to trade, investment and global economic engagement are thus critical to Canada’s long-term prosperity.
Since 2009, Canada has been leading G-20 efforts to achieve strong, sustainable and balanced growth by encouraging countries to undertake a range of reforms aimed at strengthening policy frameworks and making the private sector more resilient.
In challenging global economic circumstances, the Government has consistently pursued the reduction of trade and investment barriers at home and abroad. The Global Commerce Strategy was launched in 2007 as a new framework for strengthening the competitiveness of Canadian businesses in international markets. Ongoing annual funding of $50 million was provided to focus on making Canada a partner of choice for international business and improving access to global markets, capital, technologies and talent.
Deepening trade and investment relationships in large and fast-growing markets helps support jobs and growth in Canada. Since 2007, the Government has concluded six free trade agreements with nine countries: Colombia, Honduras, Jordan, Panama, Peru, and the European Free Trade Association (Iceland, Liechtenstein, Norway and Switzerland).
Canada has made even more progress in recent years in negotiating foreign investment promotion and protection agreements with 16 countries including: China, Peru, Latvia, the Czech and Slovak Republics, Romania, Madagascar, Jordan, Bahrain, Kuwait, Benin, Mali, Senegal, Tanzania, Cameroon and Zambia.
The trade agenda is now focused on achieving major new free trade deals with the European Union, India and Japan. The integrated North American market will strengthen as Canada, Mexico and the United States pursue free and open trade with Asian countries through the Trans-Pacific Partnership (TPP) negotiations, ultimately linking North American and Asian markets and value chains. These agreements will provide significant economic opportunities for Canadian businesses.
Canadas Trade Agenda
Trading Partner
Population
(millions, 2012)
Gross Domestic Product
(billions of
US dollars, 2012)
European Union
504
16,589
India
1,217
1,710
Japan
128
5,962
TPP
519
19,975
Notes: TPP negotiating partners include: Australia, Brunei, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. Economic growth for the TPP is weighted by share of world output.
Sources: Haver Analytics; International Monetary Fund; national statistics agencies.
Economic Action Plan 2012 announced the Global Commerce Strategy would be refreshed in 2013 to ensure Canada’s trade and investment objectives remain focused and relevant. Details of the refreshed Global Commerce Strategy, including the important International Education Strategy component (outlined in Chapter 3.1), will be announced in the coming months.
The Government also recognizes that domestic trade barriers can undermine productivity and competitiveness. In Budget 2009, the Government eliminated all machinery and equipment tariffs. Budget 2010 eliminated all manufacturing input tariffs, making Canada the first tariff-free zone for industrial manufacturers in the G-20. These unilateral initiatives provide some $450 million in annual tariff relief for Canadian manufacturers. The Government will continue working with Canadians to identify areas where further elimination of input tariffs could benefit Canadian business.
Economic Action Plan 2013 takes targeted measures and announces investments to promote trade, which will help our manufacturers and businesses continue to succeed on the world stage and secure a prosperous future for all Canadians.
In addition, the Government announced on December 7, 2012, clarifications regarding how it will assess proposed investments in Canada by foreign state-owned enterprises, and allowing for the extension of timelines for national security reviews, where necessary. Economic Action Plan 2013 proposes to amend the Investment Canada Act to implement these reforms.
Canada and the United States enjoy the largest bilateral trading relationship in the world. Some $1.6 billion worth of goods and over 300,000 people cross our shared border each day. The secure and efficient flow of goods and people is vital to our economic competitiveness and mutual prosperity.
Prime Minister Stephen Harper and President Barack Obama announced the Beyond the Border Action Plan in December 2011. The Action Plan provides a practical road map for speeding up legitimate trade and travel. At the same time, the Prime Minister and the President also announced the Joint Action Plan for the Canada-United States Regulatory Cooperation Council to increase regulatory transparency and coordination between our two countries.
Economic Action Plan 2013 announces investments in economic and security initiatives to implement Canada’s commitments under the Canada-United States Beyond the Border Action Plan.
Canada will implement the following economic initiatives over the next five years to reduce delays at the border and benefit business, travellers and the economy as a whole:
Upgrading border infrastructure at St-Bernard-de-Lacolle, Quebec, Lansdowne, Ontario, Emerson, Manitoba, and North Portal, Saskatchewan, and installing border wait-time technology at key ports of entry.
Implementing a single window for companies to submit electronically all the data required by government departments for arriving shipments, reducing red tape, delays and business costs.
Harmonizing and enhancing the benefits of trusted trader and traveller programs, which expedite and reduce costs of border processes. This includes increasing the number of, and access to, Canadian FAST and NEXUS lanes.
Equipping new customs facilities at the port of Vancouver and pilot projects at the ports of Prince Rupert and Montreal. This will improve cargo security at the perimeter with the goal of expediting truck and rail traffic at the land border under the concept of “cleared once, accepted twice”.
Developing and implementing pilot projects to automate small and remote ports of entry, which will increase hours of operation. If the pilots are successful, more small and remote ports could be automated, generating savings and efficiencies.
In addition, on January 8, 2013 Canada and the United States announced an increase in low-value shipment thresholds for expedited customs clearance, which would facilitate trade and allow an additional 1.5 million shipments to be cleared on an expedited basis.
Canada is also implementing a number of initiatives over the next five years to address threats as early as possible and allow border agencies to further facilitate the flow of legitimate goods and people across our shared border:
Enhancing Canada’s capability to share immigration information with the United States. This will improve immigration and refugee determinations and help officials to establish the identity of foreign nationals at the earliest opportunity.
Implementing an Electronic Travel Authorization system to improve screening of all visa-exempt foreign nationals (excluding U.S. citizens).
Supporting integrated cross-border law enforcement initiatives, such as regularizing Shiprider teams, creating land-based integrated teams for intelligence and criminal investigations, and creating a bilateral radio interoperability system to enhance timely responses to border incidents.
Developing an Interactive Advance Passenger Information System to make “board/no board” decisions on all travellers flying to Canada prior to departure.
Establishing and coordinating entry and exit information systems with the United States, including a system where the record of land entry into one country can be utilized to establish a record of exit from the other.
Economic Action Plan 2013 highlights early progress in Canada-United States regulatory cooperation.
Under the Regulatory Cooperation Council Joint Action Plan, examples of early deliverables by regulators in Canada and the United States in 2012 include the development of detailed implementation work plans for each of the 29 initiatives; the launch of pilot projects for simultaneous submissions to regulators in both countries for crop protection products; and simultaneous reviews by regulators in both countries in the area of veterinary drugs.
Canada will continue to work closely with the United States to implement both the Beyond the Border and Regulatory Cooperation Council Action Plans to ensure timely benefits for people and business on both sides of the border. The Government also proposes to implement other measures that facilitate the secure movement of people and goods and ensure that border processing is not a hindrance to legitimate trade and travel.
Economic Action Plan 2013 announces measures to reduce red tape, cut costs, improve access to existing programs and promote Canada’s foreign trade zone advantage.
Building on the success of the Government’s gateways and corridors approach, Economic Action Plan 2012 committed to an examination of Canada’s current foreign trade zone (FTZ) policies and programs. The Government held nationwide consultations to seek the views of Canadian industry on ways to enhance this programming for Canadian manufacturers and business.
Informed by stakeholders’ views, Economic Action Plan 2013 is taking action to deliver a package of measures to reduce red tape, cut costs, improve access to existing programs and promote Canada’s FTZ advantage, including:
Eliminating the annual registration fee for the Customs Bonded Warehouse Program.
Simplifying the application process.
Accepting applications for new FTZ “single window” initiatives to deliver FTZ programs at strategic locations in Canada.
Providing $5 million over five years to market Canada’s FTZ advantage.
These measures will help Canadian entrepreneurs in the development of manufacturing, processing and warehouse hubs in strategic locations throughout Canada. They will enhance Canada’s globally competitive business environment, which provides a solid foundation to attract foreign investment in Canada, creates jobs for Canadians and fosters long-term economic growth.
Economic Action Plan 2013 announces that the Government will introduce new regulations governing Export Development Canada’s domestic activities.
In Economic Action Plan 2012, the Government committed to undertake further assessment and consultations with stakeholders on Export Development Canada’s (EDC’s) role in the domestic market, where it has operated under temporary extended powers since 2009. Informed by stakeholders’ views, the Government has concluded that, while EDC’s temporary powers have contributed positively to providing additional credit and insurance capacity, such broad powers are no longer required.
To provide greater clarity and predictability on the circumstances under which EDC will be able to provide support in the domestic market going forward, the Government will introduce amendments to the Export Development Canada Exercise of Certain Powers Regulations. Under the new regulations, EDC would be able to continue to provide financing in the domestic credit market to meet the needs of Canadian exporters, while ensuring that its ongoing domestic role is aligned with its export mandate, and distinct from the role of the Business Development Bank of Canada. EDC’s ongoing role in the domestic market would also be limited to providing credit capacity, in a manner that complements private sector lenders. The Government plans to review the regulations in three years in light of developments in credit markets.
In order allow the necessary time to complete the regulatory process, the temporary powers granted to EDC since 2009 have been extended until March 12, 2014 or until the new regulations come into force (whichever is earlier).
Economic Action Plan 2013 follows through on last year’s commitment to review Canada’s General Preferential Tariff regime.
Canada’s General Preferential Tariff (GPT) regime offers lower-than-normal tariff rates for imports from developing countries. The GPT, and similar programs in the G-7 and other developed countries, aim to promote economic growth in developing countries. The GPT regime has not been substantively updated since its introduction in 1974.
Economic Action Plan 2012 committed to undertake a comprehensive review of Canada’s GPT regime to ensure that it is appropriately aligned with the current global economic landscape and other major tariff preference-granting countries, and to target the benefits to countries most in need of this type of assistance. Consultations concluded in February 2013.
Informed by stakeholders’ views, Economic Action Plan 2013 is taking action to modernize Canada’s GPT regime. The Government is proposing, effective January 1, 2015, to graduate 72 higher-income and trade-competitive countries (e.g. Korea, China, Brazil) and renew the GPT for another 10-year period. From now on, beneficiary countries will be reviewed bi-annually based on objective economic criteria to determine whether they remain eligible for GPT benefits.
The modernized GPT regime will continue to promote economic growth and export diversification in developing countries by providing meaningful incentives for Canadian businesses and consumers to import from GPT-eligible countries.
Canada’s continued support for trade liberalization is complemented by a strong and effective trade policy and remedy system, which acts as an important safety valve for Canadian producers harmed by unfairly traded imports. To maintain a level playing field for Canadian producers, the Government will continue to ensure that its regime takes into account whether our trading partners are operating according to trade policy and market principles. Following the plan announced in Economic Action Plan 2012, in order to provide a trade remedy system that cuts red tape and facilitates effective action against unfair trade, the Government proposes to consolidate Canada’s trade remedy investigation functions under the Canadian International Trade Tribunal.
Major economic projects are an important source of development and job creation in all regions of Canada. Our diverse and abundant natural resource sector is an asset that benefits all Canadians. Natural resources account for 15 per cent of our gross domestic product and 50 per cent of our exports. Over the next 10 years, more than $650 billion in new investment is expected from more than 600 major resource projects planned across Canada. Meeting global demand for natural resources through responsible development will create jobs and benefit all Canadians. The resource sector offers particular benefits for Canada’s North. The Government is improving the Northern regulatory system and taking other important steps to support resource development in the North.
To maximize the value that Canada draws from our natural resources, Economic Action Plan 2012 introduced significant system-wide improvements to achieve the goal of “one project, one review” in a clearly defined time period, streamlined the review process for major economic projects, enhanced consultation with Aboriginal peoples, and strengthened environmental protection and pipeline and marine safety. As an example of this commitment to maximize the benefits derived from natural resources, the Government is providing $4.4 million over three years to the Ring of Fire Capacity Building Initiative, through the Federal Economic Development Initiative for Northern Ontario. This initiative will provide targeted support to communities directly adjacent to the Ring of Fire for activities such as business skills development, strategic business planning and Aboriginal youth engagement, to ensure that First Nations benefit fully from resource development opportunities associated with Ring of Fire projects. The Government’s comprehensive Responsible Resource Development plan will create jobs, growth and long-term prosperity while strengthening protection of the environment for future generations of Canadians.
The agricultural and fisheries sectors are important contributors to the Canadian economy, producing safe and high-quality products for the domestic market and for export around the world. The Government remains committed to pursuing policies that support the competitiveness of these sectors while promoting sustainable management, now and over the long term.
Through Economic Action Plan 2013, the Government is taking steps to support mineral exploration and fisheries.
Economic Action Plan 2013 proposes to extend the 15-per-cent Mineral Exploration Tax Credit for flow-through share investors for an additional year.
The 15-per-cent Mineral Exploration Tax Credit helps junior mineral exploration companies raise capital by providing an incentive to investors in flow-through shares issued to finance mineral exploration. Over recent years, it is estimated that the credit helped junior mining companies raise an average of about $800 million annually in new financing for grassroots exploration. This credit is in addition to the deduction provided to the investor for the exploration expenses “flowed through” from the company that issues the shares.
The credit is scheduled to expire on March 31, 2013. However, given the ongoing economic uncertainty and to support the mineral exploration efforts of junior mining companies, Economic Action Plan 2013 proposes to extend the credit for an additional year, until March 31, 2014.
It is estimated that the extension of this measure will result in a net reduction of federal revenues of $100 million over the 2013-14 to 2014-15 period.
Economic Action Plan 2013 proposes to provide $57.5 million over five years to enhance regulatory certainty for the aquaculture sector.
Aquaculture production has been growing rapidly worldwide due to increasing demand for fish and seafood. Currently, aquaculture accounts for approximately 50 per cent of seafood for human consumption. With our extensive coastline, healthy and productive waters, skilled workforce, and world-class research facilities, Canada is recognized internationally as one of the best places in the world to establish aquaculture operations.
In 2008, the Government launched the Sustainable Aquaculture Program to provide a foundation for the development of an economically viable and ecologically sustainable aquaculture industry in Canada. To build on the progress achieved to date, Economic Action Plan 2013 proposes to provide $57.5 million over five years to streamline the aquaculture regulatory regime, to conduct scientific research in support of regulatory decision making, and to report on the environmental and economic performance of the sector.
Economic Action Plan 2013 proposes to provide $33.1 million in 2013-14 to extend the Atlantic Integrated Commercial Fisheries Initiative and the Pacific Integrated Commercial Fisheries Initiative.
The Atlantic and Pacific Integrated Commercial Fisheries Initiatives are designed to integrate First Nations fishing enterprises into existing commercial fisheries in order to provide economic opportunities for First Nations fishermen and to improve the overall management of fisheries on the Atlantic and Pacific coasts. Through these and related programs, the Government has invested over $730 million to provide First Nations access to commercial fisheries and to assist in building sustainable commercial fisheries enterprises.
To build on the progress achieved to date and to continue promoting the integration of commercial fisheries, Economic Action Plan 2013 proposes to provide $33.1 million in 2013-14 to Fisheries and Oceans Canada to extend the Atlantic and Pacific Integrated Commercial Fisheries Initiatives.
Economic Action Plan 2013 highlights the Government’s significant investments in support of the agricultural sector.
In September 2012, federal, provincial and territorial governments reached agreement on the new Growing Forward 2 agricultural policy framework. Under the new five-year agreement, governments will invest over $3 billion in strategic initiatives for innovation, competitiveness and market development. Governments will also continue to deliver an effective suite of Business Risk Management programs, to provide assistance to farmers in cases of severe market volatility and disasters.
Since August 1, 2012, western Canadian grain farmers have had the freedom to market their grain to the organization of their choice. In 2012, the Government committed nearly $350 million to the interim Canadian Wheat Board to cover the extraordinary costs of adjusting to operate in an open market.
Economic Action Plan 2013 proposes to increase the limit that restricts the deductibility of farming losses in some cases.
The restricted farm loss income tax rules apply to part-time farmers. These tax rules limit the amount of farm losses that can be applied against income from other sources. The current limit of $8,750 has not been increased in 20 years. Economic Action Plan 2013 proposes to double the limit to $17,500 to increase support to Canadian families involved in part-time farming.
It is estimated that this change will reduce federal revenues by $5 million in each of 2013-14 and 2014-15.
Under the Growing Forward framework agreement, federal, provincial and territorial governments committed $2.4 billion for investments in the agricultural sector to support innovation, markets and trade, business development, food safety and the environment. In addition, governments have provided more than $10 billion in payments under Business Risk Management programs to help farmers manage income declines.
The federal government has also provided additional support to the sector through a number of initiatives designed to respond to immediate pressures and to enhance the long-term competitiveness of Canadian agriculture. Examples include:
$500 million to establish the Agricultural Flexibility Fund to improve the sector's competitiveness and help it adapt to cost of production pressures.
$370 million to support rationalization and debt restructuring in the hog industry.
Over $300 million to support an exit strategy for tobacco producers.
$50 million to support increased slaughter capacity.
$50 million for the Agricultural Innovation Program to support the development and commercialization of innovative new products, technologies, processes and services.
$44 million to transition the Canadian Grain Commission to a sustainable funding model.
Canadians benefit from a strong and healthy financial sector. The sector plays a fundamental role transforming savings into productive reinvestment in the economy, facilitating the efficient management of risk, and providing the payments infrastructure necessary for the exchange of goods, services and financial assets. As a source of high-quality jobs, employing nearly
three-quarters of a million Canadians, and significant tax revenues, it makes a substantial contribution to the Canadian economy. Moreover, Canada’s large banks and insurance companies are also increasingly successful in international markets, thereby yielding more and higher-quality jobs at home.
Canada’s financial system is widely considered one of the most resilient and best regulated in the world. For the fifth year in a row, the World Economic Forum has recognized our banking system as the soundest in the world. The 6 largest Canadian banks were among the top 25 in Bloomberg’s most recent list of the world’s strongest banks (including 4 banks among the top 10, more than any other country) and the credit ratings of Canadian banks continue to be among the highest in the world.
Since the start of the global financial crisis, the Government has implemented a number of measures to maintain Canada’s financial sector advantage. These measures are designed to reinforce the stability of the sector and protect Canadian consumers. Economic Action Plan 2013 proposes new initiatives that will build on Canada’s financial sector advantage.
Economic Action Plan 2013 will implement changes to limit the use of portfolio insurance and prohibit the use of any government-backed insured mortgage as collateral in securitization vehicles that are not sponsored by Canada Mortgage and Housing Corporation.
Mortgage insurance is a significant component of Canada’s financial stability framework, and also serves to facilitate Canadian homebuyers’ access to mortgage credit. This is especially true where homebuyers make a down payment of less than 20 per cent of the purchase price of the property as federally regulated lenders are required by law to obtain mortgage insurance on these high loan-to-value mortgages. This insurance is backed by Canadian taxpayers.
Consistent with actions taken relative to high-ratio mortgages since 2008, the Government will implement new measures related to insurance of portfolios of low-ratio mortgages.
Financial institutions significantly increased purchases of portfolio insurance during the financial crisis because pools of insured mortgages were more easily used in bank funding vehicles, particularly Canada Mortgage and Housing Corporation (CMHC) securitization programs. More recently, financial institutions have used portfolio insurance for new purposes, such as capital and liquidity management.
With the financial crisis well behind us, the Government is amending the rules for portfolio insurance to increase market discipline in residential lending and reduce taxpayer exposure to the housing sector. The changes will include gradually limiting the insurance of low-ratio mortgages to only those mortgages that will be used in CMHC securitization programs. In addition, the Government intends to prohibit the use of any taxpayer-backed insured mortgage, both high and low ratio, as collateral in securitization vehicles that are not sponsored by CMHC. These measures will restore taxpayer-backed portfolio insurance to its original purpose of allowing access to funding for mortgage assets. The Government will consult with industry stakeholders on implementation details and the timing of these measures.
Financial institutions will continue to have access to a broad array of financing options, including the recently implemented framework for covered bonds.
The Government’s preferred approach to improving the regulation of Canada’s capital markets is through a common securities regulator established cooperatively with provinces and territories. If a timely agreement cannot be reached on a common regulator, the Government will propose legislation to carry out its regulatory responsibilities consistent with the decision rendered by the Supreme Court of Canada.
In the Reference re Securities Act of December 2011, the Supreme Court of Canada found that Parliament has a role in securities regulation regarding matters of genuine national importance and scope, including maintaining the integrity and stability of the financial system, preserving fair, efficient and competitive national capital markets, and preventing and responding to systemic risks, such as those posed by over-the-counter derivatives.
In its decision, the Supreme Court indicated that “each level of government has jurisdiction over some aspects of the regulation of securities and each can work in collaboration with the other to carry out its responsibilities.” Since the Reference, the Government has consulted with provinces and territories on establishing a common securities regulator on a cooperative basis as outlined by the Court.
The Government would be prepared to delegate the administration of its own securities legislation to a common securities regulator if a critical mass of provinces and territories were willing to do the same. The Government would support an agreement with willing provinces and territories to establish a common regulator with the following elements:
The common regulator should administer a single set of rules.
It should be operationally independent and self-funded through a single, simplified set of fees.
It should be directed by a professional board of directors with broad capital markets-related expertise.
A common regulator would also preserve the elements of the current system that work well, such as maintaining regulatory offices in each participating jurisdiction, with the capacity and resources to serve market participants locally.
Canada is the only industrialized country without a national securities regulator. By pooling provincial, territorial and federal jurisdiction and expertise, Canada could have a world-leading securities regulatory regime that contributes to a stronger national economy and allows Canada to better compete in global capital markets. Canadian businesses would be able to raise funds throughout Canada more quickly and at lower cost, which would stimulate investment. Businesses would also benefit from more expedited regulatory decisions.
The Government’s preferred approach is to improve the regulation of Canada’s capital markets through a cooperatively established common securities regulator. If a timely agreement cannot be reached, the Government will propose legislation to ensure that it can carry out its regulatory responsibilities for capital markets consistent with the decision of the Supreme Court of Canada. This will include the capacity to monitor, prevent and respond to systemic risks emerging from capital markets. A federal capital markets regulatory framework would be applied consistently on a national basis and would not displace provincial securities commissions, which would still manage the day-to-day regulation of securities activities.
The Government proposes to extend the mandate of the Canadian Securities Transition Office to ensure that its resources remain available as work continues to strengthen the regulation of Canada’s capital markets.
The Government will continue to review federal legislation and, where appropriate, introduce further changes to support the over-the-counter derivatives reform agenda.
The Government has taken a number of actions to support the stability of the Canadian financial system and has been an early implementer of the G-20 financial reform agenda. In Economic Action Plan 2012, the Government brought forward measures to support central clearing of standardized over-the-counter derivatives transactions–a key G-20 commitment–and to reinforce Canada’s financial stability framework. On January 1, 2013, Canada implemented Basel III capital requirements, among the first jurisdictions to do so. The Government will continue to review federal legislation and, where appropriate, introduce further changes to support the over-the-counter derivatives reform agenda.
The Government will examine whether the conflict of interest provisions contained in the financial sector statutes remain consistent with the overall Government policy as outlined in the Conflict of Interest Act.
To ensure the continued strong governance and oversight of federally regulated financial institutions, the Government will examine whether the conflict of interest provisions contained in the financial sector statutes remain consistent with overall Government policy as outlined in the Conflict of Interest Act.
Economic Action Plan 2013 will implement a comprehensive risk management framework for Canada’s systemically important banks.
Canada’s large banks are a source of strength for the Canadian economy. Our large banks have become increasingly successful in international markets, creating jobs at home.
The Government also recognizes the need to manage the risks associated with systemically important banks–those banks whose distress or failure could cause a disruption to the financial system and, in turn, negative impacts on the economy. This requires strong prudential oversight and a robust set of options for resolving these institutions without the use of taxpayer funds, in the unlikely event that one becomes non-viable.
The Government intends to implement a comprehensive risk management framework for Canada’s systemically important banks. This framework will be consistent with reforms in other countries and key international standards, such as the Financial Stability Board’s Key Attributes of Effective Resolution Regimes for Financial Institutions, and will work alongside the existing Canadian regulatory capital regime. The risk management framework will include the following elements:
Systemically important banks will face a higher capital requirement, as determined by the Superintendent of Financial Institutions.
The Government proposes to implement a “bail-in” regime for systemically important banks. This regime will be designed to ensure that, in the unlikely event that a systemically important bank depletes its capital, the bank can be recapitalized and returned to viability through the very rapid conversion of certain bank liabilities into regulatory capital. This will reduce risks for taxpayers. The Government will consult stakeholders on how best to implement a bail-in regime in Canada. Implementation timelines will allow for a smooth transition for affected institutions, investors and other market participants.
Systemically important banks will continue to be subject to existing risk management requirements, including enhanced supervision and recovery and resolution plans.
This risk management framework will limit the unfair advantage that could be gained by Canada’s systemically important banks through the mistaken belief by investors and other market participants that these institutions are “too big to fail.”
Economic Action Plan 2013 will enhance the Government’s support for the strategic international expansion of Canadian financial institutions.
The Government will enhance its activities aimed at promoting the Canadian financial sector internationally. As part of the Government’s efforts to intensify Canada’s pursuit of new and deeper trade relationships, it will partner with financial institutions to promote the Canadian brand with key decision makers in foreign markets. Strategic expansion of Canadian financial institutions internationally will create skilled financial sector jobs in Canada and allow the industry to increase its contribution to the Canadian economy.
Economic Action Plan 2013 will propose to remove some residency requirements to provide flexibility for financial institutions to efficiently structure the committees of their boards of directors.
As Canadian financial institutions are global and growing in prominence, the Government will propose to allow financial institutions more flexibility regarding the residency of members of board committees while maintaining the requirement that the majority of board members be Canadian residents. This would achieve a better balance between flexibility for institutions and continuing to ensure that financial institution boards have a strong Canadian presence.
The Government will consult with provinces on permitting qualified persons who are not resident in Canada to serve on the board of directors of the Canada Pension Plan Investment Board.
The Canada Pension Plan Investment Board (CPPIB) has become one of the largest pension funds in the world, with total assets of $172.6 billion as at December 31, 2012. In prudently managing these funds for the benefit of current and future plan members, the CPPIB invests a significant proportion of its assets outside of Canada. Currently, only Canadian residents can serve on the CPPIB’s 12-person board of directors. At this stage of its evolution, the CPPIB’s board of directors might benefit from having access to the international talent pool. The Government will therefore consult provinces on permitting a limited number of qualified persons who are not resident in Canada to serve on the board of directors of the CPPIB, and if there is sufficient support, introduce the necessary changes to the Canada Pension Plan Investment Board Act.
The Government is committed to ensuring the proper management and ongoing sustainability of the Canada Pension Plan. The Government proposes to make the necessary amendments to ensure that the Canada Revenue Agency can accurately identify, calculate and reimburse overpayments made to the Quebec Pension Plan (QPP) in a given year by QPP contributors living outside of Quebec.
The Government will consult Canadians on the issue of corporate transparency, with a focus on bearer shares and the ability of competent authorities to access information on corporate beneficial ownership.
Accurate and accessible information on individuals that own or control private corporations assists law enforcement and other government agencies in the fight against money laundering, terrorist financing and tax evasion by improving the ability to trace and detect criminal funds in the Canadian financial sector. As part of a broader public consultation on the Canada Business Corporations Act, the Government will consult on the issue of corporate transparency, with a focus on bearer shares and the ability of competent authorities to access information on corporate beneficial ownership. The Government will also seek input on other issues raised in the 2010 report by the Standing Committee on Industry, Science and Technology and topics raised by stakeholders.
Economic Action Plan 2013 will review the regulatory framework to ensure that new financial institutions can emerge, grow and compete to offer Canadians better products and services.
Consumers are best served by the financial services sector when the regulatory framework allows new financial institutions to emerge, grow and compete to offer Canadians better products and services. A competitive and efficient financial sector also benefits businesses and the broader economy. The Government will review the regulatory framework, including the process for approval of new financial institutions, to ensure that it promotes the entry and growth of smaller institutions, while preserving the safety and soundness of the sector.
The Government will continue to work with the Royal Canadian Mint to improve the efficiency of the currency system.
In Economic Action Plan 2012, the Government took steps to lower costs and modernize the currency system by phasing out the penny as well as changing the composition of $1 and $2 coins, using more cost-effective steel-plated technology. The Government will continue to work with the Royal Canadian Mint to improve the efficiency of the currency system.
A competitive business tax system plays a key role in supporting businesses in all sectors of the Canadian economy to invest, grow and thrive. The Government has implemented broad-based tax reductions that support investment and growth, and is delivering more than $60 billion of tax relief to job-creating businesses over 2008–09 and the following five fiscal years.
To spur investment and productivity, the Government has taken the following key actions:
The federal general corporate income tax rate was reduced to 15 per cent in 2012 from 21 per cent in 2007, and the corporate surtax that represented an additional 1.12 percentage points was eliminated in 2008 for all corporations.
The federal capital tax was eliminated in 2006. The Government also provided a temporary financial incentive to encourage the provinces to eliminate their general capital taxes, or to otherwise replace their capital taxes on financial institutions with a minimum tax. The last provincial general capital tax was eliminated in 2012.
The small business tax rate was reduced to 11 per cent in 2008 from 12 per cent in 2007, and the amount of income eligible for this lower rate was increased to $500,000 in 2009.
The Lifetime Capital Gains Exemption on qualified small business shares was raised to $750,000 from $500,000 in Budget 2007, the first increase in the exemption since 1988. Economic Action Plan 2013 proposes to further increase the Lifetime Capital Gains Exemption to $800,000 in 2014 and to index the new limit to inflation.
A temporary accelerated capital cost allowance for investment in manufacturing or processing machinery and equipment has been provided since 2007. Economic Action Plan 2013 proposes to extend the temporary accelerated capital cost allowance for two additional years, through 2015, so that the manufacturing and processing sector can further invest to increase productivity.
Canada’s system of international taxation was improved in order to better support cross-border trade and investment.
Special tax preferences for certain activities, sectors or business structures were eliminated or phased out in order to encourage investment to flow to its most productive uses. For example, the Government took action to phase out all tax preferences for oil sands producers relative to the conventional oil & gas sector.
These actions are working to improve Canada’s overall business environment and tax competitiveness and have resulted in Canada having the lowest overall tax rate on new business investment in the G-7 (Chart 3.2.5). They are part of a policy framework that increases the productive capacity of the Canadian economy as well as Canadian living standards. Lower general corporate income tax rates and other tax changes have increased the expected rate of return on investment and reduced the cost of capital, giving businesses strong incentives to invest and hire in Canada. Low taxes increase the level of investment in the Canadian economy, while a more neutral tax system improves the allocation of this investment throughout the economy. The combination of a larger and a better allocated stock of capital will, in turn, increase Canada’s productive capacity and raise living standards.
Chart 3.2.5Marginal Effective Tax Rate1 on New Business Investment, 2014
1. 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 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). The METR includes measures announced as of March 1, 2013. It excludes the resource and financial sectors and tax provisions related to research and development.
2. OECD average excludes Canada.
Source: Department of Finance.
The marginal effective tax rate is an internationally recognized comprehensive indicator of the tax burden on new business investment. It combines into a single measure the statutory income tax rate, deductions and credits associated with purchasing capital goods, and parameters related to the financial structure of firms and their cost of capital.
The competitiveness of Canada’s business tax system is supported by third-party analysis. The KPMG publication Competitive Alternatives 2012 rigorously analyzed the impact of federal, state, provincial and municipal taxes on business operations. KPMG concluded that Canada’s total business tax costs are the lowest in the G-7 and more than 40 per cent lower than those in the United States.
The Government’s low-tax plan is helping to guide the Canadian economy along the path of sustainable economic growth. Real business investment in Canada is now 8.1 per cent higher than its pre-recession peak, while no other G-7 country has even recovered to its pre-recession level. This significant growth in business investment increases the amount of machinery, equipment, information technology and other physical capital in the economy. A larger stock of capital, in turn, increases Canada’s productive capacity, creates jobs and raises living standards.
Improving the Canadian tax system to help Canadian businesses compete globally in this period of economic uncertainty requires collaboration among all levels of government. Provinces and territories have taken important actions to enhance Canada’s business tax advantage and contribute to a strong foundation for future growth.
The Government of Canada and provincial and territorial governments have also collaborated to improve the efficiency and simplicity of the tax system, for example by entering into income tax collection agreements. Work is ongoing to improve and enhance the application and administration of these agreements.
Economic Action Plan 2013 proposes to phase out the accelerated capital cost allowance for capital assets used in new mines and major mine expansions and to reduce the rate at which pre-production mine development expenses may be deducted for tax purposes.
In 2006, the Government committed to examine opportunities to make the tax system more neutral across sectors to help ensure that investment is directed toward its most productive uses. The Government further committed in 2009, along with other G-20 countries, to “rationalize and phase out over the medium term inefficient fossil fuel subsidies.” In support of these commitments, the Government took action in Budget 2007 and Budget 2011 to phase out all tax preferences for oil sands producers relative to the conventional oil & gas sector. In addition, Economic Action Plan 2012 announced the phase-out of the Atlantic Investment Tax Credit for the oil & gas and mining sectors.
As a first step in making the tax system more neutral between mining and other industries, Economic Action Plan 2012 announced the phase-out of the Corporate Mineral Exploration and Development Tax Credit. Economic Action Plan 2013 takes further action toward this objective. It proposes to phase out tax preferences for capital expenditures in the mining sector by aligning the deduction rates of capital assets in the mining sector with those available in the oil & gas sector:
the accelerated capital cost allowance for capital assets used in new mines and major mine expansions will be phased out; and
the deduction rate for pre-production mine development expenses will be reduced.
These measures will improve the neutrality of the tax system and the allocation of investment and capital within the Canadian economy. Actions taken by the Government since 2006, including corporate income tax rate reductions and the elimination of the federal capital tax, have increased the competitiveness of Canada’s business tax system, including for the mining sector.
The alignment of deduction rates in the mining sector with those available in the oil & gas sector will apply to the mining sector generally, including coal producers. These measures constitute further action that the Government is taking in support of its G-20 commitment.
Economic Action Plan 2013 proposes to phase out the additional deduction for credit unions to improve the neutrality and fairness of the tax system.
The small business deduction provides a preferential income tax rate, on up to $500,000 per year of qualifying business income, to Canadian-controlled private corporations (CCPCs) with taxable capital employed in Canada of less than $15 million. Credit unions have access to this preferential income tax rate on the same basis as CCPCs.
An additional deduction, available only to credit unions, provides access to the preferential income tax rate for income that is not eligible for the small business deduction. The additional deduction for credit unions was implemented in the early 1970s to provide credit unions with access to the small business deduction on a basis similar to that for CCPCs. Since that time, the design of the small business deduction has changed significantly. As a result of those changes, the additional deduction now provides credit unions with access to the preferential income tax rate that is not available to CCPCs. Quebec has already taken action by eliminating special access to its reduced provincial tax rate for credit unions in 2003.
To improve the neutrality and fairness of the tax system, Economic Action Plan 2013 proposes to phase out the additional deduction for credit unions over five years, beginning in 2013.
It is estimated that the phase-out of the additional deduction for credit unions will increase federal revenues by $35 million over the 2013-14 to 2014-15 period.
Economic Action Plan 2013 announces a number of measures to make the tax system simpler, and to facilitate and improve compliance.
The Government is committed to making the tax system simpler and putting in place the right framework to ensure tax compliance. In support of these objectives, Economic Action Plan 2013 announces the following measures:
The Canada Revenue Agency (CRA) will make improvements to help taxpayers meet their filing obligations with respect to Form T1135 (the Foreign Income Verification Statement).
Economic Action Plan 2013 proposes to amend the tax rules to make it less time-consuming for pension administrators and employers to refund a contribution made to a Registered Pension Plan as a result of a reasonable error.
Economic Action Plan 2013 proposes to reduce the compliance burden for employers under the Goods and Services Tax/Harmonized Sales Tax (GST/HST) pension plan rules by allowing an employer and a pension plan to not account for deemed tax or for actual tax in certain circumstances.
Economic Action Plan 2013 proposes new administrative monetary penalties and criminal offences to deter the use, possession, sale and development of electronic suppression of sales software that is designed to falsify records for the purpose of tax evasion.
Economic Action Plan 2013 proposes to improve the effectiveness of tax compliance programs by giving the Minister of National Revenue the authority to withhold GST/HST refunds to businesses until all the required business identification information is provided to the CRA.
Details on these measures are provided in Annex 2.
Economic Action Plan 2013 proposes a number of measures to address international tax evasion and aggressive tax avoidance.
International tax evasion and aggressive tax avoidance entail a fiscal cost to governments and taxpayers worldwide, and are unfair to businesses and individuals who play by the rules. The Government of Canada is committed to protecting the revenue base and ensuring public confidence in the fairness and equity of the tax system. Accordingly, Economic Action Plan 2013 proposes to:
Require certain financial intermediaries including banks to report international electronic funds transfers of $10,000 or more to the CRA. Funding of $15 million over five years will be provided to the CRA for this initiative.
Extend the normal reassessment period by three years for a taxpayer who has failed to report income from a specified foreign property on their annual income tax return and failed to properly file the Foreign Income Verification Statement (Form T1135).
Revise Form T1135 reporting to provide more detailed information including the names of specific foreign institutions and countries where offshore assets are located and the foreign income earned on those assets.
Streamline the process for the CRA to obtain information concerning unnamed persons from third parties such as banks.
The CRA will also launch the Stop International Tax Evasion Program aimed at reducing international tax evasion and avoidance. Under this program, the CRA will pay rewards to individuals with knowledge of major international tax non-compliance when they provide information to the CRA that leads to the collection of outstanding taxes due. The CRA will pay a reward to an individual only if the information results in total additional assessments exceeding $100,000 in federal tax. In this way, the CRA will target high-income taxpayers who attempt to evade or avoid tax using complex international legal arrangements. A reward will not be paid to an individual who has been convicted of tax evasion in connection with the non-compliance.
A number of other countries that are members of the Organisation for Economic Co-operation and Development (OECD), including the United States, the United Kingdom and Germany, already provide rewards for information regarding taxpayer non-compliance.
In addition to the implementation of these new measures, the CRA will increase compliance and audit efforts and activities to combat international tax evasion and aggressive tax avoidance. This will improve the effectiveness of these new measures.
The Government continues to actively negotiate and conclude tax treaties to reduce tax barriers to international trade and investment, combat tax evasion and avoidance, strengthen Canada’s bilateral economic relationships, and create enhanced opportunities for Canadian businesses abroad. Since Economic Action Plan 2012 and as of March 1, 2013:
A new tax treaty with Colombia has come into force.
A protocol to update the tax treaty with Singapore has come into force.
New tax treaties with Hong Kong, New Zealand, Poland and Serbia have been signed.
A protocol to update the tax treaty with Luxembourg has been signed.
An agreement concerning the exchange of information provisions of the Canada-Switzerland Tax Treaty has been signed.
Tax information exchange agreements (TIEAs) with Aruba, Costa Rica and Saint Lucia have come into force.
TIEAs with Liechtenstein and Uruguay have been signed.
Canada now has 90 tax treaties in force, 11 tax treaties and protocols signed but not yet in force, and 8 tax treaties under negotiation.
The Government is committed to combating international tax evasion and to ensuring tax fairness by implementing the standard developed by the OECD for the effective exchange of tax information in tax treaties and in TIEAs. Since 2007, the Government has brought into force 16 TIEAs, signed 2 TIEAs that are not yet in force and is actively negotiating TIEAs with 12 other jurisdictions.
The Government is also engaged in negotiations with the U.S. for an agreement to enhance information exchange under the Canada-United States Tax Treaty. The agreement would include information exchange provisions in support of the United States Foreign Account Tax Compliance Act provisions.
Under the agreement, information exchange would be improved on a reciprocal basis to facilitate tax compliance in both countries. The agreement would reflect a commitment by Canada and the United States to work with other partners on adapting the terms of the agreement to a common model for automatic exchange of information.
Table 3.2.1 Helping Manufacturers and Businesses Succeed in the Global Economy
millions of dollars
2012-13
2013-14
2014-15
Total
Strengthening the Competitiveness
of the Manufacturing Sector
Tax Relief for New Manufacturing Machinery and Equipment
140
140
Strengthening the Competitiveness of Major Manufacturing Industries
Helping Southern Ontario Prosper
184
184
Aerospace and Space Sectors
Creation of an Aerospace Technology Demonstration Program
11
11
Supporting Forestry Innovation and Market Development
47
47
Subtotal-Strengthening the Competitiveness
of the Manufacturing Sector
382
382
Supporting Small Businesses
Expanded Support for Small Businesses
Expansion and Extension of Hiring Credit for Small Business
56
169
225
Increasing and Indexing the Lifetime Capital Gains Exemption
5
15
20
Subtotal-Supporting Small Businesses
56
174
15
245
Growing Trade and Investment
Strengthening Canadas Foreign Trade Zone Advantage
1
1
3
SubtotalGrowing Trade and Investment
1
1
3
Responsible Resource Development
Supporting Junior Mineral Exploration
135
-35
100
Improving the Conditions for a Sustainable Aquaculture Sector
12
12
23
Supporting First Nations Fishing Enterprises
33
33
Supporting Farmers
Increasing the Restricted Farm Loss Deduction Limit
5
5
10
Subtotal-Responsible Resource Development
185
-19
166
Keeping Taxes Low for Job-Creating Businesses
Combating International Tax Evasion and Aggressive Tax Avoidance
International Electronic Funds Transfers
2
5
6
Subtotal-Keeping Taxes Low for Job-Creating Businesses
2
5
6
Total–Helping Manufacturers and Businesses Succeed
in the Global Economy
