At the launch of the 2025 federal election, major political parties started their campaign with talk of tax reform. Mark Carney’s campaign platform, though neither progressive nor ambitious, garnered by far the most attention, in part for the reversal of his predecessor’s flagship tax policies: the consumer carbon price and the increase in the capital gains inclusion rate. The Conservative Party had initially campaigned in undoing these tax initiatives, but Carney’s campaign promises rendered right-wing sloganeering around these policies ineffective—conservatives got what they wanted.
While the personal finances of voters understandably took centre stage, little was said about another key tax policy: the corporate income tax (CIT). The federal NDP’s platform did promise to take on corporate income taxes and profits, with a surtax on corporations earning over $500 million in profits, as well as a 15 percent minimum tax on book profits, but these commitments were not elevated into the realm of public debate.
In recent years the Liberals have signalled an interest in reforming Canada’s CIT rates, and are looking at incentives to soften corporate resistance to these changes. The Liberal government, predating Carney’s ascendance, have introduced a “patent box” regime to encourage new investments, easing off half of the 15 percent baseline CIT rate for taxes on Canadian-developed intellectual property income. This policy will be implemented by mid-2025, and although the government claims to have done its due diligence, major questions remain about the program’s efficacy and the opportunities it creates for tax avoidance.
Given new policy discourse interested in reviving industrial policy, further advocacy for changes to the CIT rate would be anticipated, but the desire for change by the new government and in what direction remains unclear. The Carney government stands at a crossroads: continue the trend of corporate tax breaks, or pivot to a set of incentives as a part of a coherent industrial strategy that boosts domestic production and distributes income more equally among Canadians.
Any discussion of corporate taxation should begin with an assessment of its current weaknesses. The CIT policy’s leniency has broadly increased inequality among Canadians, due in part to the significant reductions in taxable income that businesses can claim through write-offs for depreciation and other special exemptions. As demonstrated by Statistics Canada, only three quarters of corporate profits are actually taxable on average. Most of these profits are claimed by Canadian businesses, but a significant portion is also kept by foreign multinational enterprises (MNEs). These leniencies and loopholes reduce the efficacy of Canada’s CIT policy.
Source: Statcan Tables 36-10-0582-01 and 36-10-0582-01. The former table reveals the deductions that bring operating profit down to taxable income.
Two more important aspects of the CIT stem from the statutory and effective tax rates. The statutory rate was reduced dramatically under the Chrétien-Martin and Harper governments. All the while, the effective tax rate remained lower, lagging behind the statutory rate by roughly 2.5 percentage points. Accounting for the clear cuts in corporate tax rates, the average corporation operating in Canada in 2022 paid only 18.5 percent in taxes on their monetary profits, rather than the statutory 26.3 percent. Canadian households, by contrast, paid on average 36.7 percent of their incomes in taxes that year, according to a recent analysis by Marc Lee and D.T. Cochrane.
Source: Statcan Tables 36-10-0582-01 and Finances of the Nation.
Where does fairness fit in all this? Corporations are overwhelmingly owned by elite income recipients, whose profits contribute directly to their own stock value and further income accruel. These assets are much more liquid than those held by moderate-income groups like homeowners. The concentration of corporate ownership towards the top explains why the CIT rate is the most consistently progressive tax in Canada, as Lee and Cochrane also explain. Its reduction has had major distributional effects: leading tax think tank Canadians for Tax Fairness found that regressive tax reforms in the past few decades have been the single largest contributor to widening top-end inequality.
Corporate tax cuts have also failed to deliver on their promise of universal economic growth. The literature in this area is complex, largely because researchers struggle to isolate the impact of tax cuts, but there is growing consensus that CIT rate cuts do not encourage growth. One peer-reviewed study from 2012 and a 2021 follow-up identified a modest and short-term relationship between province-level tax cuts and GDP growth, while another by professors Juan Carlos Suárez Serrato and Owen Zidar from 2016 came to similar conclusions for state-level economies in the US. A thorough 2015 study from the Canadian Centre for Policy Alternatives examined multiple growth indicators and found that CIT rate cuts are in fact associated with lower levels of investment and increased corporate cash hoarding. A more recent cross-national study found no clear relationship between corporate tax cuts and economic growth.
By contrast, studies unanimously find that CIT rate cuts increase economic inequality. If corporate tax breaks boost real wages at all, the effects are modest and short-lived, while in the long-run more money goes to elites. Even Serrato and Zidar, for instance, find that about two thirds of corporate taxes are paid by stockholders and landlords. Likewise, a recent analysis of the 2017 corporate tax cuts in the US found that virtually all of the savings went to the top ten percent of the income distribution.
If Carney and his cabinet are committed at all to equitable growth, then they must be willing to raise the hackles of the corporate sector from time to time. For starters, they should ensure that the incoming patent box regime does not generate another wave of regressive tax expenditures, which have already eroded Ottawa’s budgets. They should also end the tax breaks and subsidies for the fossil fuel sector, which has demonstrably harmed Canadian manufacturing. More ambitiously, they should consider a reversal of the existing policy failures, and bring the rate of corporate taxation in line with that of Canadian households.
