Debates of March 17, 2004 (day 2)

Thank you, Mr. Speaker. Mr. Speaker, in reference to the budget address today, I have a question for the Minister of Finance. On page 14 it says effective January 1, 2004, we will be increasing the corporate income tax rate from 12 percent to 14 percent. It goes on to say -- and this is something that is complicated I know, but I wanted to make note of it -- as a result of rebasing the tax effort adjustment factor in the new formula financing agreement, the GNWT would actually lose revenues if we attract investments at the current corporate income tax rate. So we have gone from 12 percent to 14 percent and this puts us at a rate one-and-a-half percent higher than Alberta. What kind of an impact is this going to have on the possibility of large companies filing their income tax in other jurisdictions where the corporate rate is lower? Is that something that has been contemplated and considered? Thank you, Mr. Speaker.

Minister of Finance, Mr. Roland.

Return To Question 11-15(3): Corporate Income Tax Rate

Thank you, Mr. Speaker. Mr. Speaker, we have looked at a number of options and potential impacts, and that is one of the areas of potential lost revenue, is that large companies that have the ability to file in another jurisdiction would do so. At the same time, previously we did have a 14 percent corporate tax rate and felt that going back to the amount it was, hopefully wouldn’t drive out people to invest in other jurisdictions. That is one of the areas we did look at but, as the Member stated, we have to address the issue of our rebasing the tax effort. If we don’t do that then we will lose significantly more revenue even though it seems like we do make some, because we’ll have a dollar plus taken off of our transfer payment from Canada if we don’t change it. Thank you.

Supplementary, Mrs. Groenewegen.

Supplementary To Question 11-15(3): Corporate Income Tax Rate

Thank you, Mr. Speaker. Mr. Speaker, I would like to ask the Finance Minister, what was our corporate tax rate at the time that we received those filings, which resulted in what we came to fondly refer to as tax windfalls? Thank you, and what was the rate?

Minister of Finance, Mr. Roland.

Further Return To Question 11-15(3): Corporate Income Tax Rate

Thank you, Mr. Speaker. The initial amount when we had filings, one-time filings in the Northwest Territories, large filings that caused some of our problems, was 14 percent. Following that there was another amount, I believe 12 percent, but as we know now the rebasing effort that is going to be done through the federal formula financing agreement would cause us to go back into what we would call a perversity factor where we would lose more money than we would gain if we did not change our tax effort. Thank you.

Supplementary, Mrs. Groenewegen.

Supplementary To Question 11-15(3): Corporate Income Tax Rate

Thank you, Mr. Speaker. So, Mr. Speaker, I just want to confirm that when some corporations filed their tax returns in the Northwest Territories and paid taxes to our jurisdiction, some of those were received while our corporate tax rate was 14 percent. So what would have been the incentive or motivation for those companies to file with us at 14 percent if Alberta was sitting at 12.5 percent? What would have attracted those and how could we encourage more of that? Thank you.

Minister of Finance, Mr. Roland.

Further Return To Question 11-15(3): Corporate Income Tax Rate

Thank you, Mr. Speaker. Mr. Speaker, we are unaware of what would have caused them to decide to file in the Northwest Territories, besides having a main part of their office and their infrastructure in the Northwest Territories. A company can’t remove all of its earnings and pay it in another jurisdiction. There is still a portion of that they would have to pay here depending on the size of the company, where their other office locations are and the size of their earnings in other jurisdictions as well. Those one-time earnings were good in one sense and bad in another, because that has allowed the situation of overpayment to happen to us on the corporate tax side. As to what caused them to file in the Northwest Territories, we don’t have that information. Thank you.

Final supplementary, Mrs. Groenewegen.

Supplementary To Question 11-15(3): Corporate Income Tax Rate

Thank you, Mr. Speaker. Then to allay peoples’ fears about a mass exodus of corporate taxpayers in the Northwest Territories, then what you are saying is it wouldn’t be realistic to assume that if someone had the lion’s share of their activities taking place in the Northwest Territories and had a corporate office say in Edmonton or Vancouver, that they could legally file their corporate tax return in another jurisdiction to obtain a lower rate. Could the Minister confirm that that is the case? Thank you.

Minister of Finance, Mr. Roland.

Further Return To Question 11-15(3): Corporate Income Tax Rate

Thank you, Mr. Speaker. There is a requirement that they would have to pay some portion of their taxes, depending on the size of their operation and jurisdiction. Now, the other type of income that can be filed or earnings filed would be on investment income, and that doesn’t need a location or an office. They could have a small operation, an employee, a storefront operation that they could file, but that is on investment income. On the actual corporate tax side where the main earnings that we receive would require a certain portion, again, would break out the amount of operation they had in the jurisdiction that they were operating in. There is still some flexibility in there for them to file in a different jurisdiction depending on their location, but the big tax windfalls we had that I am aware of, I believe one of the companies or a number of the companies did not actually have a full operation in the Northwest Territories. That is based on investment income, and we know that as a result of stock markets and that situation. There are not a lot of companies out there that have those types of earnings to want to invest in different jurisdictions, because every company would if they had an opportunity to invest in a jurisdiction with lower corporate tax rates, if they had that flexibility I believe they would. Thank you.