What are the biggest effects for Canadian business interests in the U.S.?
The Globe and Mail published a great piece about the implications associated with the recent tax reform bill that was passed in Congress. The bill represents President Trump’s first real legislative accomplishment, and the most significant tax reform the U.S. has seen since 1986. The gist of the bill includes a reduction in the corporate tax rate from 35 percent to 21 percent. The reduction in the corporate rate is one of the most significant changes that will affect businesses of all sizes.
For the first time ever there is a potential limitation on any interest expense, including that associated with third-party debt. The restrictions associated with the deductibility of interest expenses will require planning, however some small businesses may be excluded from these limits.
The big question is whether these tax reforms are going to make our corporate tax rate seem miniscule.
“We’re not gonna have any more pharmaceutical companies buying donut-makers in Canada and move their headquarters to get a lower tax rate,” – Republican Senator Johnny Isakson
Lower corporate rates generally lead to higher economic activity. Once the U.S. tax rate reductions become effective and the ability to immediately expense certain business assets is in place, Canadian businesses may be at a disadvantage they haven’t been used to. On the other hand, Canadian businesses that operate in the U.S. and generate significant revenues south of the border are getting a big break.
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