Railways, Taxation and the COVID-19 Recovery
The COVID-19 pandemic has caused unprecedented impacts on human health, workers, businesses, and governments in Canada and around the world. As the Canadian economy emerges from the pandemic and continues on its path to recovery, now is as an important time as ever for the government to maintain a competitive tax environment. A competitive tax environment will enable the private sector to drive the economic recovery through investment, job creation, and the generation of sustainable tax revenues.
The rail industry is a significant contributor to the Canadian economy and will play a central role in the COVID-19 recovery and Canada’s transition to a low-carbon economy. Over the past decade, railways have continued to increase investment into the Canadian network, while generating increased tax revenues for governments.
In 2018, rail contributed $17.6 billion to Canada’s GDP, generated $7.2 billion in tax revenue, supported 182,000 jobs and lifted incomes by $10.1 billion. Railways bring over $320 billion of goods to market each year – over 50% of the country’s exports – while contributing to only 3.5% of Canada’s transportation GHG emissions.
As one of Canada’s most capital-intensive industries, the Railway Association of Canada (RAC) recommends two tax policies to support investment in rail and create economic opportunities for the communities and industries that rely on them:
- Implement 100% Capital Cost Allowance in the first year for all railway assets.
Canadian railways invest heavily in their networks to compete with railways in the U.S. that enjoy 100% immediate depreciation, and the Canadian trucking sector that benefits from more favourable capital cost allowance rates and operates on publicly funded infrastructure. 100% immediate depreciation for railway assets could incentivize higher levels of investment into modern, fuel-efficient locomotives and safer, lighter, higher-capacity railcars.
- Implement a shortline railway tax credit in Canada that is comparable to the U.S. Section 45G Tax Credit.
On average, shortline railways are not able to invest as much of their revenues back into track infrastructure as Class 1 railways, and there is currently no dedicated funding or support program for shortline railways at the federal level. Investments in shortline infrastructure improve the fluidity of the transportation system, drive more traffic to the rail network and improve safety while reducing emissions and the strain on public infrastructure. A tax credit program in Canada would cost less than $25 million per year.
With the implementation of these two tax recommendations, Canada’s railways will be able to carry an even greater load in our country’s post-pandemic economic recovery.
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