SIGNIFICANT DEVELOPMENTS
Federal corporate tax rates will be reduced from 28% to 21% by January 1, 2004. In addition, the inclusion rate for capital gains realized after February 27, 2000, and before October 18, 2000, decreased from three-quarters to two-thirds, and it further decreased to one-half for capital gains realized after October 17, 2000. General note: The following information is based on actual and proposed legislation as of January
1, 2001. It is assumed that the proposed legislation will become law.
TAXES ON CORPORATE INCOME
Federal income tax/The following rates apply for December 31, 2000, year-ends. No federal rate changes came into effect during the 2000 calendar year. The federal rate before surtax on other income was reduced from 28% to 27% on January 1, 2001, and will be further reduced to 21% by January 1, 2004. This rate reduction will not apply to income eligible for the small-business deduction, manufacturing and processing income,
resource income, investment income benefiting from refundable tax provisions, and income of mutual fund and investment corporations, because such income already benefits from preferential rates. The surtax will remain 1.1%. As a result, the net federal tax rate on other income was reduced to 28.1% on January 1, 2001, and will be reduced to 22.1% by January 1, 2004.
Manufacturing
and processing Other
% %
Basic rate……………………………………………………… 38.0 38.0
Less-Provincial abatement (1) …………………………… 10.0 10.0
Federal rate before surtax………………………………… 28.0 28.0
Federal surtax of 4% (2) ………………………………… 1.1 1.1
29.1 29.1
Less-Manufacturing and processing
Profits deduction …………………………………………… 7.0 -
Net federal tax rate………………………………………… 22.1 29.1
“Typical” provincial rate (3) …………………………… 13.0 15.5
Total rate (4) ……………………………………………… 35.1 44.6
Notes:
1. The basic rate of federal tax is reduced by a 10% abatement to allow the provinces and territories room to impose corporate income taxes. The abatement is available in respect of taxable income allocated to Canadian provinces and territories. Taxable income allocable to a foreign jurisdiction is not eligible for the abatement and is normally not subject to provincial or territorial taxes.
2. All corporations, except nonresident-owned investment corporations, are subject to a 4% surtax that is calculated on the basic rate less the provincial abatement. As discussed above, reductions to the federal rate before surtax on other income will not affect the federal surtax.
3. Provincial taxes apply in addition to federal taxes. Provincial tax rates are noted below.
4. For small Canadian-controlled priva
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