TORONTO - Canada's federal budget for 2003, introduced in Ottawa last week, includes two major tax breaks long sought by the nation's 3,500 dealers.
Gone is the much detested capital tax, in force since 1989. A straight 0.225 percent levy on a business's assets, such as vehicles in inventory, the tax will be eliminated in 2008. In the meantime, the threshold for being subject to the tax will be raised to $50 million Canadian from $10 million on Jan.1, 2004.
"The capital tax has been a major issue for dealers because of the ever-increasing value of the inventories they carry," says Huw Williams, a spokesman for the Canadian Automobile Dealers Association.
"This factor has made more and more dealers subject to the tax. Its elimination is going to make a big difference to a dealer's ability to reinvest in his business."
Auto industry consultant Dennis DesRosiers says elimination of the tax also will help attract automotive investment to Canada.
"It's been the No. 1 irritant to automotive investment in the country," he says.
"The auto sector is highly capital intensive, with new plants costing up to $1.5 billion. If you want to attract that capital, why would you tax it?"
The budget also raised the threshold for the small business tax. Over the next four years, the threshold for the tax will be raised to $300,000 from $200,000. Profits up to that point will be taxed at 12 percent; above it, at 28 percent.
"They've set a bar which is more meaningful for today," Williams says.
John Clark, president of Clark Chevrolet-Olds-Cadillac in Fredericton, New Brunswick, says the tax changes will be good for the industry. The elimination of the capital tax alone will save him some $35,000 a year, he says.
"You had to pay it whether you made money or not," he says.
Clark says the tax changes will improve dealers' cash flow.
"It's good for business," he says. "It helps create employment by allowing car dealers to invest in technology, equipment, buildings. And that helps us all."