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Canada pressured to respond to Trump’s tax cut regime

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Donald Trump’s planned tax cuts would wipe out Canada’s slim corporate tax advantage, likely driving more capital from the northern nation and deepening its productivity crisis

Canada’s federal corporate income tax rate is 15%, compared with 21% in the U.S. After accounting for provincial and state levies, the two countries are similar, with the corporate rate between 25% and 27% in Canada and about 26% to 27% in the U.S., said John Oakey, vice president of taxation with Chartered Professional Accountants Canada.

Trump has proposed slashing the U.S. corporate rate to 15%. He’s also pledged to extend his 2017 tax cuts, many of which are due to expire by the end of 2025, including individual income tax reductions. While he may face hurdles in Congress, the Republican sweep of both chambers makes it more likely he’ll pull off his agenda.

His election “turns the heat up” on Canadian policymakers, said William Robson, chief executive officer of the C.D. Howe Institute, as the country “ought to be reducing the taxes that are the most punishing on entrepreneurial activity and investment.” That includes taxes on businesses and high earners.

“We need to break the glass on our tax competitiveness problem,” he said.

Justin Trudeau, Canada’s prime minister, and Chrystia Freeland, Canada’s finance minister.

Canada’s Finance Minister Chrystia Freeland estimated earlier this year that the tax rate on new business investment would rise to 16.8% by 2028, more than eight points lower than a projected 24.9% in the US. Trump’s election upends that expectation. And her government’s decision to raise the capital gains inclusion rate in June to “make Canada’s tax system fairer” drew the ire of many economists and businesses.

Under Prime Minister Justin Trudeau, fiscal policy has been geared toward redistribution and has recently involved new spending on housing, daycare, dental and drug plans. That’s increasingly been funded by corporate taxes, which represented 21% of the federal government’s revenues in fiscal year 2022-23 — the highest in data going back to 1966.  

“Directionally, it’s becoming more clear that the US is going in one direction and Canada’s going the other,” Oakey said.

Trump’s tariff threats aside, Canada is at a disadvantage to the U.S. The world’s biggest economy has more than eight times Canada’s population. The U.S. also spends more on research and development as a percentage of its economy — 3.6% in 2022, versus 1.8% for Canada. 

When Trump began slashing business taxes in 2017, Trudeau’s government responded by allowing Canadian firms to write off certain assets more quickly, including machinery and equipment. Those tax breaks are set to end this year.

A top priority should be keeping those breaks as part of a “major shift” in Canada’s tax system, said economist Jack Mintz, president’s fellow in the school of public policy at the University of Calgary. The Business Council of Canada also recommended “a comprehensive review of the tax system to better incentivize private sector investments and boost wages” in a report from September.

Mintz suggested reducing the country’s top personal tax rates, which are above 50% in most jurisdictions and kick in at lower incomes than in other Group of Seven countries such as France and Japan. Lost revenue could be recouped as businesses expand production or new firms are created, he said. 

The country’s parliamentary budget officer, Yves Giroux, has argued that Canada has the space for tax cuts.  

Brain drain

High taxes add fuel to concerns about Canada’s productivity problem, which the country’s central bank declared an “emergency” in March and attributed to limited capital investment. These conditions are prompting some entrepreneurs to consider moving elsewhere.  

That so-called brain drain has been a longstanding issue. Tech founders often point to Slack Technologies Inc., which originated in Vancouver but set up in San Francisco before being acquired by Salesforce in 2021 for $27.7 billion.

An artificial intelligence chip startup called Tenstorrent founded in Toronto — valued this month at $2.7 billion — quietly re-domiciled to Santa Clara, California, at the end of 2023, according to tech publication The Logic.

Others may follow suit.

“Almost every day we’re talking about whether, for our own scale plans, it makes sense to stay in Canada or whether the move is to go to the United States in 2025,” said Herman Chandi, co-founder of UrbanLogiq, a Vancouver-based startup that sells data analytics to governments. 

Chandi said he’s mulling factors such as Trump’s tax agenda, the increase to Canada’s capital gains inclusion rate, “Buy American” procurement policies, the cost of living in Vancouver and anemic economic growth in Canada. His company’s investors may also require UrbanLogiq to move to the US, “and so those conversations are ongoing.”

Tax advisors have also had conversations like these. 

“Anecdotally, I’ve heard from lots of professionals who have packed up and left or have at least said they’re considering leaving,” Oakey said.

Kenneth Keung, a tax advisor with Moodys Tax in Calgary, said he’s also seeing a ramp up in wealthy clients, including manufacturers, asking for guidance on how they can move their businesses and assets to the U.S. since Trump’s election. 

Conservative Leader Pierre Poilievre, whose party holds a substantial polling lead over the incumbent Liberals, has pledged to cut taxes and regulations for businesses, though he’s not specified how low taxes would go. 

“Rampant tax increases by the Trudeau NDP-Liberal government have pushed money out of our country,” Poilievre said in a radio interview with CKNW in Vancouver last month, referring to a power-sharing deal the Liberals had with the left-wing New Democratic Party. He said he would eliminate the carbon tax, cut income tax and cut taxes on investment if elected.

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Inventory Management For Financial Accuracy and Operational Success

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Inventory Management

In the dynamic world of business operations, precise inventory management is more than a routine task—it is a critical factor in achieving financial accuracy and operational efficiency. Beyond simple stock tracking, accurate inventory recording plays a vital role in financial reporting, resource planning, and strategic decision-making. This article explores the essential practices for maintaining accurate inventory records and their profound impact on business performance.

At the heart of effective inventory management is the implementation of a real-time tracking system. By leveraging technologies such as barcode scanners, RFID tags, and IoT sensors, businesses can maintain a perpetual inventory system that updates stock levels instantly. This ensures accuracy, reduces the risk of stockouts or overstocking, and enables better forecasting and planning.

A standardized process for receiving, storing, and dispatching inventory is equally important. Documenting each step—from goods received to final distribution—establishes a clear audit trail, reduces errors, and minimizes the potential for discrepancies. Properly labeled and organized inventory not only saves time but also supports efficient workflows across departments.

Regular physical counts are essential for verifying recorded inventory against actual stock. Whether conducted through periodic cycle counts or comprehensive annual inventories, these audits help identify issues such as shrinkage, theft, or obsolescence. Combining physical counts with real-time systems ensures alignment and strengthens the accuracy of inventory records.

The use of inventory management software has transformed the way businesses maintain inventory data. Advanced systems automate data entry, provide centralized visibility across multiple warehouses or locations, and generate actionable analytics. Features like demand forecasting, low-stock alerts, and real-time reporting empower businesses to make informed decisions and optimize inventory levels.

Accurate inventory valuation is another cornerstone of sound inventory management. Businesses typically choose from methods such as First-In, First-Out (FIFO), Last-In, First-Out (LIFO), or the weighted average cost method. Selecting and consistently applying the appropriate method is essential for financial accuracy, tax compliance, and reflecting inventory flow in financial statements.

Inventory management also has direct implications for financial reporting, tax preparation, and securing business financing. Reliable inventory records instill confidence in stakeholders, demonstrate operational efficiency, and support compliance with accounting standards and regulatory requirements. Additionally, precise data allows businesses to assess their inventory turnover ratio—a key metric for evaluating operational performance and profitability.

In conclusion, accurate inventory recording is a strategic imperative for businesses aiming to enhance financial precision and operational excellence. By adopting advanced technologies, implementing standardized processes, and conducting regular audits, companies can ensure their inventory records remain accurate and reliable. For business leaders and finance professionals, effective inventory management is not just about compliance—it is a powerful tool for driving profitability, improving resource allocation, and maintaining a competitive edge in the market.

Mastering inventory management creates a foundation for long-term success, allowing businesses to operate efficiently, make better decisions, and deliver consistent value to stakeholders.

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New IRS regs put some partnership transactions under spotlight

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Final regulations now identify certain partnership related-party “basis shifting” transactions as “transactions of interest” subject to the rules for reportable transactions.

The final regs apply to related partners and partnerships that participated in the identified transactions through distributions of partnership property or the transfer of an interest in the partnership by a related partner to a related transferee. Affected taxpayers and their material advisors are subject to the disclosure requirements for reportable transactions. 

During the proposal process, the Treasury and the Internal Revenue Service received comments that the final regulations should avoid unnecessary burdens for small, family-run businesses, limit retroactive reporting, provide more time for reporting and differentiate publicly traded partnerships, among other suggested changes now reflected in the regs.

  • Increased dollar threshold for basis increase in a TOI. The threshold amount for a basis increase in a TOI has been increased from $5 million to $25 million for tax years before 2025 and $10 million for tax years after. 
  • Limited retroactive reporting for open tax years. Reporting has been limited for open tax years to those that fall within a six-year lookback window. The six-year lookback is the 72-month period before the first month of a taxpayer’s most recent tax year that began before the publication of the final regulations (slated for Jan. 14 in the Federal Register). Also, the threshold amount for a basis increase in a TOI during the six-year lookback is $25 million. 
  • Additional time for reporting. Taxpayers have an additional 90 days from the final regulation’s publication to file disclosure statements for TOIs in open tax years for which a return has already been filed and that fall within the six-year lookback. Material advisors have an additional 90 days to file their disclosure statements for tax statements made before the final regulations. 
  • Publicly traded partnerships. Because PTPs are typically owned by a large number of unrelated owners, the final regulations exclude many owners of PTPs from the disclosure rules. 

The identified transactions generally result from either a tax-free distribution of partnership property to a partner that is related to one or more partners of the partnership, or the tax-free transfer of a partnership interest by a related partner to a related transferee.

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The tax-free distribution or transfer generates an increase to the basis of the distributed property or partnership property of $10 million or more ($25 million or more in the case of a TOI undertaken in a tax year before 2025) under the rules of IRC Sections 732(b) or (d), 734(b) or 743(b), but for which no corresponding tax is paid. 

The basis increase to the distributed or partnership property allows the related parties to decrease taxable income through increased cost recovery allowances or decrease taxable gain (or increase taxable loss) on the disposition of the property.

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Treasury, IRS propose rules on commercial clean vehicles, issue guidance on clean fuels

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The Treasury Department and the Internal Revenue Service proposed new rules for the tax credit for qualified commercial clean vehicles, along with guidance on claiming tax credits for clean fuel under the Inflation Reduction Act.

The Notice of Proposed Rulemaking on the credit for qualified commercial clean vehicles (under Section 45W of the Tax Code) says the credit can be claimed by purchasing and placing in service qualified commercial clean vehicles, including certain battery electric vehicles, plug-in hybrid EVs, fuel cell electric vehicles and plug-in hybrid fuel cell electric vehicles.  

The credit is the lesser amount of either 30% of the vehicle’s basis (15% for plug-in hybrid EVs) or the vehicle’s incremental cost in excess of a vehicle comparable in size or use powered solely by gasoline or diesel. A credit up to $7,500 can be claimed for a single qualified commercial clean vehicle for cars and light-duty trucks (with a Gross Vehicle Weight Rating of less than 14,000 pounds), or otherwise $40,000 for vehicles like electric buses and semi-trucks (with a GVWR equal to or greater than 14,000 pounds).

“The release of Treasury’s proposed rules for the commercial clean vehicle credit marks an important step forward in the Biden-Harris Administration’s work to lower transportation costs and strengthen U.S. energy security,” said U.S. Deputy Secretary of the Treasury Wally Adeyemo in a statement Friday. “Today’s guidance will provide the clarity and certainty needed to grow investment in clean vehicle manufacturing.”

The NPRM issued today proposes rules to implement the 45W credit, including proposing various pathways for taxpayers to determine the incremental cost of a qualifying commercial clean vehicle for purposes of calculating the amount of 45W credit. For example, the NPRM proposes that taxpayers can continue to use the incremental cost safe harbors such as those set out in Notice 2023-9 and Notice 2024-5, may rely on a manufacturer’s written cost determination to determine the incremental cost of a qualifying commercial clean vehicle, or may calculate the incremental cost of a qualifying clean vehicle versus an internal combustion engine (ICE) vehicle based on the differing costs of the vehicle powertrains.

The NPRM also proposes rules regarding the types of vehicles that qualify for the credit and aligns certain definitional concepts with those applicable to the 30D and 25E credits. In addition, the NPRM proposes that vehicles are only eligible if they are used 100% for trade or business, excepting de minimis personal use, and that the 45W credit is disallowed for qualified commercial clean vehicles that were previously allowed a clean vehicle credit under 30D or 45W. 

The notice asks for comments over the next 60 days on the proposed regulations such as issues related to off-road mobile machinery, including approaches that might be adopted in applying the definition of mobile machinery to off-road vehicles and whether to create a product identification number system for such machinery in order to comply with statutory requirements. A public hearing is scheduled for April 28, 2025.

Clean Fuels Production Credit

The Treasury the IRS also released guidance Friday on the Clean Fuels Production Credit under Section 45Z of the Tax Code.

Section 45Z provides a tax credit for the production of transportation fuels with lifecycle greenhouse gas emissions below certain levels. The credit is in effect in 2025 and is for sustainable aviation fuel and non-SAF transportation fuels.

The guidance includes both a notice of intent to propose regulations on the Section 45Z credit and a notice providing the annual emissions rate table for Section 45Z, which refers taxpayers to the appropriate methodologies for determining the lifecycle GHG emissions of their fuel. In conjunction with the guidance released Friday, the Department of Energy plans to release the 45ZCF-GREET model for use in determining emissions rates for 45Z in the coming days.

“This guidance will help put America on the cutting-edge of future innovation in aviation and renewable fuel while also lowering transportation costs for consumers,” said Adeyemo in a statement. “Decarbonizing transportation and lowering costs is a win-win for America.”

Section 45Z provides a per-gallon (or gallon-equivalent) tax credit for producers of clean transportation fuels based on the carbon intensity of production. It consolidates and replaces pre-Inflation Reduction Act credits for biodiesel, renewable diesel, and alternative fuels, and an IRA credit for sustainable aviation fuel. Like several other IRA credits, Section 45Z requires the Treasury to establish rules for measuring carbon intensity of production, based on the Clean Air Act’s definition of “lifecycle greenhouse gas emissions.”

The guidance offers more clarity on various issues, including which entities and fuels are eligible for the credit, and how taxpayers determine lifecycle emissions. Specifically, the guidance outlines the Treasury and the IRS’s intent to define key concepts and provide certain rules in a future rulemaking, including clarifying who is eligible for a credit.

The Treasury and the IRS intend to provide that the producer of the eligible clean fuel is eligible to claim the 45Z credit. In keeping with the statute, compressors and blenders of fuel would not be eligible.

Under Section 45Z, a fuel must be “suitable for use” as a transportation fuel. The Treasury and the IRS intend to propose that 45Z-creditable transportation fuel must itself (or when blended into a fuel mixture) have either practical or commercial fitness for use as a fuel in a highway vehicle or aircraft. The guidance clarifies that marine fuels that are otherwise suitable for use in highway vehicles or aircraft, such as marine diesel and methanol, are also 45Z eligible.

Specifically, this would mean that neat SAF that is blended into a fuel mixture that has practical or commercial fitness for use as a fuel would be creditable. Additionally, natural gas alternatives such as renewable natural gas would be suitable for use if produced in a manner such that if it were further compressed it could be used as a transportation fuel.

Today’s guidance publishes the annual emissions rate table that directs taxpayers to the appropriate methodologies for calculating carbon intensities for types and categories of 45Z-eligible fuels.

The table directs taxpayers to use the 45ZCF-GREET model to determine the emissions rate of non-SAF transportation fuel, and either the 45ZCF-GREET model or methodologies from the International Civil Aviation Organization (“CORSIA Default” or “CORSIA Actual”) for SAF.

Taxpayers can use the Provisional Emissions Rate process to obtain an emissions rate for fuel pathway and feedstock combinations not specified in the emissions rate table when guidance is published for the PER process. Guidance for the PER process is expected at a later date.

Outlining climate smart agriculture practices

The guidance released Friday states that the Treasury intends to propose rules for incorporating the emissions benefits from climate-smart agriculture (CSA) practices for cultivating domestic corn, soybeans, and sorghum as feedstocks for SAF and non-SAF transportation fuels. These options would be available to taxpayers after Treasury and the IRS propose regulations for the section 45Z credit, including rules for CSA, and the 45ZCF-GREET model is updated to enable calculation of the lifecycle greenhouse gas emissions rates for CSA crops, taking into account one or more CSA practices.    

CSA practices have multiple benefits, including lower overall GHG emissions associated with biofuels production and increased adoption of farming practices that are associated with other environmental benefits, such as improved water quality and soil health. Agencies across the Federal government have taken important steps to advance the adoption of CSA. In April, Treasury established a first-of-its-kind pilot program to encourage CSA practices within guidance on the section 40B SAF tax credit. Treasury has received and continues to consider substantial feedback from stakeholders on that pilot program. The U.S. Department of Agriculture invested more than $3 billion in 135 Partnerships for Climate-Smart Commodities projects. Combined with the historic investment of $19.5 billion in CSA from the Inflation Reduction Act, the department is estimated to support CSA implementation on over 225 million acres in the next 5 years as well as measurement, monitoring, reporting, and verification to better understand the climate impacts of these practices.

In addition, in June, the U.S. Department of Agriculture published a Request for Information requesting public input on procedures for reporting and verification of CSA practices and measurement of related emissions benefits, and received substantial input from a wide array of stakeholders. The USDA is currently developing voluntary technical guidelines for CSA reporting and verification. The Treasury and the IRS expect to consider those guidelines in proposing rules recognizing the benefits of CSA for purposes of the Section 45Z credit.

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