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Ottawa, December 21, 2001
2001-125

General Corporate Tax Rate Cut by 2 Percentage Points as of January 1, 2002

Related Document:

• Backgrounder - list of measures included in the Five-Year Tax Reduction Plan.

Finance Minister Paul Martin today reaffirmed that the 27-per-cent general corporate tax rate is legislated to decrease to 25 per cent as of January 1, 2002.

The rate was reduced from 28 per cent to 27 per cent on January 1, 2001, and is legislated to fall to 21 per cent by 2004.

"A competitive business tax regime is key to fostering greater investment in Canada," said Minister Martin. "In this regard, it is important to note that federal corporate tax cuts, combined with similar actions by some of the provinces, will reduce the average Canadian general corporate tax rate to 5 percentage points below that of the U.S. by 2005."

The general corporate tax rate cut is part of the Government’s Five-Year Tax Reduction Plan – the largest tax cut in Canada’s history. Under this plan, which was announced in 2000, personal income taxes were reduced, and other tax measures were put in place to reward entrepreneurship and stimulate economic growth. These include a faster corporate tax rate reduction for small business, a tax-free rollover for small business investments, and a reduced inclusion rate for capital gains.

The attached backgrounder lists measures included in the Government’s Five-Year Tax Reduction Plan.

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Backgrounder

Below is a list of measures included in the Five-Year Tax Reduction Plan:

• Personal income tax rates have been reduced for all taxpayers, and the 5-per-cent deficit reduction surtax has been eliminated.
• The Canada Child Tax Benefit (CCTB) for families with children has been substantially increased.
• Full indexation has been restored to the personal income tax system to protect taxpayers against automatic tax increases caused by inflation and to preserve the real value of benefits such as the CCTB and the goods and services tax/ harmonized sales tax credit.
• The amounts on which the education tax credit is based have doubled.
• The amounts on which the disability tax credit, caregiver tax credit and infirm dependant tax credit are based have all increased.
• The 28-per-cent general corporate tax rate, already reduced to 27 per cent, has been legislated to fall to 25 per cent as of January 2002, 23 per cent as of January 2003, and 21 per cent as of January 2004.
• As of January 2001 the 28-per-cent general corporate tax rate was reduced to 21 per cent on small business income between $200,000 and $300,000.
• The capital gains inclusion rate was reduced from two-thirds to one-half as of October 18, 2000. It had previously been reduced from three-quarters to two-thirds as of February 28, 2000.
• A tax-free rollover has been introduced to allow individuals to defer the tax on capital gains from eligible small business investments that are reinvested in another eligible small business.
• As of January 2001 self-employed individuals may deduct the portion of Canada Pension Plan and Quebec Pension Plan contributions that represents the employer’s share.