KPMG survey shows majority of firm heads back tax changes to boost growth, AI, and capital access
More than 90 percent of Canadian business leaders say it's time to simplify the tax system and lower the investment tax rate to drive economic growth, according to new research by KPMG in Canada.
The survey of 250 business leaders found tax reform to be among the top three federal priorities to boost competitiveness, just behind eliminating interprovincial trade barriers.
The findings reflect growing concerns around weak productivity, slow business investment, and mounting pressure from US tax policy.
Lucy Iacovelli, Canadian managing partner for tax and legal at KPMG in Canada, said “We have an historic opportunity to overcome years of complacency and build a competitive tax system.”
She described the current period as one of nation-building and urged action to tackle sluggish productivity and slowing business investment.
She added that corporate tax policies should incentivize capital deployment and enhance productivity, tying tax reform directly to Canada’s economic resilience and standard of living.
Nearly three quarters of those surveyed said current tax policies fall short of motivating investment, while 91 percent support tax and regulatory policies that encourage investment and the adoption of technologies like artificial intelligence.
Iacovelli stated that aligning business and government on corporate tax policies is needed to blunt the effects of US trade shifts and retaliatory tax legislation.
Following the 2017 cuts to US corporate tax rates and the introduction of various incentives, Canada responded with temporary measures, including accelerated write-offs for depreciable property and clean tech assets.
Brian Ernewein, senior advisor at KPMG in Canada’s National Tax Centre, said pending US legislation would make those incentives permanent, placing further pressure on Canada.
He said, “Simply matching the US on these tax incentives would not restore Canada’s competitive corporate tax advantage.”
Ernewein pointed to the need for federal and provincial action to reduce Canada’s top corporate income tax rate in response to the more uncertain US investment environment.
Ernewein also warned that proposed US legislation could target countries with so-called “discriminatory or extraterritorial taxes.”
He said the measure, if applied to Canada, could raise the tax burden on US income earned by Canadian businesses and investors and make those investments “economically unviable.”
Capital access remains a key challenge. The survey showed that 60 percent of business leaders said limited access to capital impedes investment in operations, expansion, or technology.
More than half reported exploring private capital markets to support growth and bring in expertise.
Meanwhile, 88 percent said a preferential capital gains tax rate for private investment would support long-term funding of Canadian startups, small- and mid-sized businesses, and scaleups.
Johanna Gerrie, national M&A tax leader at KPMG in Canada, said, “In a global economy, capital is mobile.” She said Canada must ensure its tax system remains efficient, stable, and competitive internationally.
According to Gerrie, attracting institutional, venture, and pension capital is essential for enabling growth and infrastructure development in Canada.
Iacovelli acknowledged that the federal government’s recent proposals mark a beginning, including expanding flow-through shares beyond mining, a 20 percent AI adoption tax credit for select businesses, and enhancing the SR&ED program alongside a patent box regime to lower tax on IP-generated income.
Still, she said broader reform is needed: “Tax changes should ease access to domestic and foreign capital and reward productivity-enhancing investments, including AI adoption.”
KPMG outlined several recommendations to improve Canada’s corporate tax system.
These include reducing complexity for both large and small businesses, evaluating the top corporate tax rate, accelerating deductions for new investments, and enhancing R&D incentives.
KPMG also pointed to inefficiencies in provincial retail sales taxes, the burden of dual tax systems, and the need to reassess reporting requirements and business penalties.
According to the firm, a planned $3.75bn increase in penalties and enforcement should be balanced by reviewing the number and level of existing business penalties.
As businesses weigh long-term decisions amid geopolitical and economic uncertainty, the call for an ambitious, simplified, and productivity-oriented tax system continues to grow.
