What Canadians Can Expect From 2018 US Tax Reforms

The tax reforms introduced by President Trump have now officially become a part of US law and are in effect from January 1, 2018. The legislation is known as the “Tax Cuts & Jobs Act” has been updated and it includes immediate expensing, lowered corporate rates, limiting net operating losses and much more.
The House and the Senate introduced some changes on their own, but some elements remained same in both, including lower tax rates for both individuals and businesses, broadening of based on credits and deductions through limitations. A territorial system has also been introduced for US multinationals with provisions against abuse, and the foreign earnings that were previously untaxed will now have a toll charge.

Impact of US tax reforms on Canadian Businesses

It is expected that the economy of Canada will be negatively affected by the US tax reforms. On the positive side, exporting more services and goods to the US market will be beneficial for Canada.
The downside is that heightened protectionism in US trade, and a more tax-competitive environment, may result in a shift of skilled labor and capital from Canada towards the markets of US.
The impact on Canada’s tax competitiveness will be the most significant, though. Putting into consideration the state income tax rates, the United States’ federal-state income tax for corporations will significantly fall from 39.1% to 26%. This is expected to be somewhat lower than the federal-provincial income tax of Canadian corporations which is approximately 26.7% (according to the GDP given by subnational jurisdictions). This crucial new shift in income tax can open new doors for the planning of taxes for US and Canada based companies that conduct cross-border operations.

Future Consideration for Canadian Businesses

The latest tax reform developments recently introduced in the United States should be carefully considered by both, government policymakers and Canadian businesses.

The US and Canadian prices of capital, labor, and returns on business investment are highly affected by these significant business-related and personal tax changes. Businesses consider tax competitiveness as only one of the many factors when they embark on investment related decisions. Many companies’ investment decisions and tax planning could be affected by the elimination of tax competitiveness which was previously enjoyed by Canada over the US for the past few decades.

Entrepreneurs will have to decide whether investing money in the US for expansion of business is more ideal or it should be invested in purposes other than the decision of investment locations.

Putting in consideration the closely knitted structure of both the countries’ economies, changes in tax rates in the United States has become a precursor for a detailed policy renewal for the Canadian economy, where for many other reasons, the review in the tax policy is already called for.

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