So the NDP just announced that they are eliminating the Corporate Capital Tax effective Jan 1, 2011. On the heels of the elimination of the small business tax, they are becoming very business friendly, right?
Well, let’s take a look.
First let’s look at the tax. What is it and what is being taxed?
The Corporate Capital tax is a tax levied on paid up capital. Basically your retained earnings or net assets ( Assets – Liabilities).
Hmmm……Imagine if the province taxed your savings. You saved $10,000 and you had to pay tax on that. Over and above the income tax on it. Yup, taxed twice.
Well, how much is it?For 2010 any paid up capital under $21 Million was exempt. So, as a business you needed to have in excess of $21 Million to pay it, and the rate was 0.2%. So on $25 Million of contributed capital, you are paying $50,000 in tax.
It may seem significant, but I can’t see this affecting a whole lot of businesses. If I don’t like paying taxes, I’ll take that paid up capital and re-invest it into my business so that I stay below $21 Million in contributed capital. So it’s not a tax that’s hard to avoid*.
And for comparison purposes, the only provinces levying a corporate capital tax were Manitoba, Quebec, and Nova Scotia. So we’re not very competitive tax wise with respect to this.
So, while tax elimination is nice, this seems to be window dressing. If the NDP was really concerned about tax relief, they would work on increasing the basic exemption and lowering the lowest tax rates for individuals so that low income earners could actually see an increase in disposable income ( contrary to Selinger’s TV commercials); and work on eliminating payroll tax to make this province more competitive for businesses.
* Tax avoidance = good; tax evasion = bad.