CATA calls on feds to eliminate capital taxes

TORONTO (03/09/2004) - The Canadian Advanced Technology Alliance (CATA) this week beseeched the Canadian federal government to eliminate capital taxes, citing the negative effects the taxes have on Canadian investment.

CATAAlliance, the trade association which represents the Canadian high tech industry, said that capital taxes cost seven dollars in output for every dollar collected.

The association sent an advisory to Federal Finance Minister Ralph Goodale in a pre-budget submission Monday pointing to a finance study from 2001, which warned that capital taxes could discourage the same behaviour that the Canadian government was trying to encourage in trying to "stimulate innovation and productivity" in the economy. CATA said its members know that Canada's economy cannot grow, and they cannot succeed if Canada does not have a competitive tax structure.

In the letter to Minister Goodale, CATA suggested that "even the Department of Finance acknowledges corporate capital taxes have negative effect on innovation and investment."

Despite the government's current five-year reduction program for the elimination of capital tax, CATA said the time table will not help to attract the investment that is essential to growth.

The group offered that in order for Canada to see rapid growth, the government must create an stimulative environment made up of four elements: a competitive tax structure; strong support for R&D; strong support for skilled human resources; and an efficient regulatory regime. CATA also said that Canada will continue to lose its best people in all professions if the government does not reduce personal income taxes further.

Additionally, the pre-budget submission detailed the need for a "viable solution" for companies that do not qualify for research tax credits. According to CATA research, companies that do not qualify for Canadian Controlled Private Corporation status also do not qualify for research tax credits if they are losing money. CATA said this method denies companies an important incentive just when they need it most.

A truly viable solution is to allow the credits to offset all other Canadian taxes, explained Russ Roberts, senior director with Ottawa-based CATA. Roberts said the government must change the Scientific Research and Experimental Development (SR&ED) tax rules to help companies that are losing money and to encourage foreign investment in R&D.

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