Will Trump lower and Trudeau raise? How taxes could change

Will Trump lower and Trudeau raise? How taxes could change | Insurance Business America

Will Trump lower and Trudeau raise? How taxes could change
North American tax regimens are expected to change directions with many banking on President-elect Trump to lower taxes while Canada’s Justin Trudeau is seemingly intent on implementing a national carbon-tax.

Many insurers have eggs in both baskets, begging the question:  how should insurance companies react to two administrations next door to each other with potentially inverse approaches to taxation?

“If there’s a change, especially in the US system, if tax rates drop significantly and they go below the Canadian rate, the logical move from the tax directors perspective is to get the best possible tax rate for them and that means moving business or changing the way you do business,” said Paul Lynch, KPMG’s Canadian Tax Litigation and Dispute Resolution national director.

“People are going to react to tax rates and right now Canadian taxes are a lot lower than the US but if that flips, you can see behaviour changing as well.”

Global companies can sometimes choose preferred tax rates by changing their financial structure and, though governments are aggressive in their collection tactics, Lynch believes it is important that they stay competitive with each other.

“These companies operate around the world, they can move a lot of business around without actually moving people,” Lynch said.

“Typically where you see the easiest way to move things around, you could put more debt into Canada for example…Canada could borrow from the US, Canada would have an interest expense, the US would have interest income, then you’ve lowered the tax base in Canada and you’ve increased the tax base in the US.”

Lynch is careful to point out that, though many people expect Trump to lower taxes, he doesn’t want to make any early assumptions.

“If people are planning for the future, they might want to see what happens with the tax rates because it’s a big cost of doing business,” Lynch said. 

There’s also the Canada Revenue Agency (CRA) plan to more aggressively investigate tax havens, monitoring every single electronic funds transfer over $10,000 exiting the country.

“It changes the behaviour of the authority more than it changes anything else,” Lynch said. “With all the OECD activity, you see these hybrid financing structures, for the most part still legal, but people are losing their appetite for that because they know they’re going to come under scrutiny or under attack.”

Lynch advises insurers to utilize the tax arm of their business to its full potential as a method of avoiding a tax dispute, something he feels most businesses don’t do.

“Say there’s two identical workplaces and one does better just engaging with them, even though they have an identical profile or identical issues, one might raise more reassessment probability than the other one simply because they failed to engage adequately with them,” Lynch said.

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