CALGARY, Jan. 29, 2013 /CNW/ - In a report published today by The School
of Public Policy, authors Stephen Richardson and Michael Smart examine
a tax issue faced by Canadian corporate groups: the transfer of income
losses from one company in the group to another.
The authors indicate that, unlike in other countries, there are no
mechanisms in Canada for corporate groups to transfer their losses.
These groups may advocate for some form of loss transfer in order to
reduce the taxes of profitable units of the group, but for government,
this would mean lost revenue.
As Richardson and Smart point out, there is an informal self-help loss
trading system in place for corporate groups. However, this is an
imperfect system, the authors argue, as not all corporate groups can
undertake sophisticated exchanges or the substantial transactions costs
associated with them.
As imperfect as the system is currently, shifting to a formal loss
transfer system simply isn't advisable in Canada because of the revenue
pitfalls, the authors argue. For one, a transfer loss system would cut
into overall corporate tax revenues, federally and provincially.
Meanwhile, some provinces would be hit harder as companies would
receive greater incentive to shift profits out of high tax
Despite the flaws of the current "self-help" system, the authors argue
that it is "providing substantial benefits in terms of overall economic
efficiency" and these benefits outweigh the alternative of a formal
loss transfer system.
The report can be found at www.policyschool.ucalgary.ca/publications
SOURCE: The School of Public Policy - University of Calgary
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