Technical Committee on Business Taxation
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1996-11

The Interaction of Federal and Provincial Taxes on Businesses

Robin Boadway and Marianne Vigneault

Please note this working paper is available in English only.

The Adobe Acrobat Version - (99,205 bytes) contains the full text of the report. It can be viewed on-line or downloaded.

Abstract

This paper provides an analysis of the ways in which the interaction between federal and provincial taxes on businesses can create distortions in the levels and types of taxation and identifies ways in which these distortions can be minimized or even eliminated. Distortions arise when full account is not taken of the effects of one level of government's tax policy choices on the other level's budget. Where this is the case, government choices of both the levels and types of taxation are likely to be sub-optimal relative to a national optimum. We identify and examine five key sources of such distortions in the Canadian tax system. These are: (i) federal and provincial co-occupation of the corporate income tax field, (ii) taxes levied at one level of government that are creditable/deductible for the purpose of calculating taxable income at another level, (iii) treatment of one level of government's resource taxes under the tax system of the other level of government, (iv) treatment of one level of government's tax incentives under the tax system of the other level of government, and (v) tax treatment of Crown corporations.

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