Thank you, Mr. Chair. I am pleased to introduce Bill 20, An Act to Amend the Income Tax Act, No. 2. This bill proposes to reduce the NWT corporate income tax rates on large corporations from 14 percent to 11.5 percent effective July 1, 2006.
If the Legislative Assembly agrees, the rate applicable to public companies and to income over the first $300,000 and income of Canadian controlled private corporations will be reduced to 11.5 percent.
The NWT has long maintained a very competitive tax environment with both personal and corporate income tax rates among the lowest in Canada. These competitive rates have helped us attract individuals and businesses to the North. In fact, our competitive corporate tax rates in 1999 and 2000 were the reason we received large amounts of tax. More recently, however, as we have increased our rate to 14 percent and several provinces have reduced rates, as a result we have lost some income to other jurisdictions.
Two years ago, when we increased the rate to 14 percent, we were concerned about formula financing implications. Under our previous formula arrangements, our grant would be clawed back by more than any possible revenue increases had we left the rate at 12 percent. Under those conditions, we had no choice but to increase the rate.
Since then, however, the federal government has changed the way our grant is determined. The level of the grant has been fixed in federal legislation for 2004-05 and 2005-06 and will be established in legislation for 2006-07. This effectively means that the GNWT will keep any increases in tax revenue and bear the full cost of any decreases.
We will not know how our tax revenues will be treated under new formula arrangements until the federal government responds to the report of the Expert Panel on Equalization and Territorial Formula Financing. However, we cannot wait for these new arrangements to be put in place before we act on this corporate tax rate issue.
Over the past two years, Alberta, British Columbia and Manitoba have all reduced their corporate income tax rates. These rates have reduced the NWT's overall competitiveness. Our position relative to other jurisdictions could have negative effects on our tax base as companies look to do business where the tax climate is more favourable. New companies currently paying tax in the NWT may re-examine their corporate structures to minimize their tax liability.
The changes proposed in Bill 20 would result in the NWT having, along with Alberta, the lowest corporate income tax rate on investment income and, after Quebec, the second lowest general corporate income tax rate.
Passage of this proposed change during the current session will permit timely notification to the federal government who administers corporate income tax on our
behalf. That concludes my opening remarks. Thank you, Mr. Chair.