1. Canada A Tax System to Encourage Investment 1 More businesses have access to tax free rollovers. -Rollover amount: $2 million -Eligibility size: $50 million The Canadian federal capital gains inclusion rate has been reduced to 50% from 75%. Among the G-7 countries, only Italy and Japan have lower tax rates on capital gains. Top Marginal Tax Rates on Capital Gains for Individuals - 2001 (Federal plus provincial/state) Source: Finance Canada, October 2001

2. Canada 2 A Tax Advantage for Firms to Expand in Canada Corporate Income Tax Rates including capital tax equivalents 44.9% 41.5% 38.6% 35.6% 34.6% 40.0% 46.6% 2000 2001 2002 20032004 2005 Source: Finance Canada, December 2001 Canadian locations compare well internationally in terms of statutory corporate income tax rates. The federal government and some provinces have announced sharp cuts in corporate taxes, to take effect over a five- year period. The Economic Statement and Budget Update accelerated the pace of this tax relief. By 2005, firms in Canada will have a 5.0% corporate income tax rate advantage over U.S. firms (including capital tax).

3. Canada Low R&D Costs 3 Canada offers the most favorable tax treatment for R&D among the G-7: - Canada’s combined federal and provincial tax credits reduce the after-tax cost of $100 of R&D expenditures to as low as $44. - In Canada, eligible costs include: capital equipment, overhead, process R&D, salaries, and materials. These tax-based incentives permit firms to significantly reduce R&D costs through direct investment or sub-contracting in Canada. Relative Competitiveness of R&D Tax System Canada 0.70 Korea U.S. France U.-K. Japan Mexico Italy Germany 0.88 0.89 0.91 0.92 0.97 1.00 1.01 1.02 1.03 1.05 Australia Sweden The B-index represents a ratio of the after-tax cost of a $1 expenditure on R&D divided by 1 less the corporate tax rate. A lower B-index indicates a more competitive R&D tax system Source: Conference Board of Canada, November 1999.

4. Canada Low Employee Benefits 4 Among the G-7, Canada has the lowest overall labour costs, including benefits. Total payments for Canadian statutory and other benefits are 25.6% of salary and wages compared to 34.2% in the U.S. -Lower medical insurance premiums are an important reason for this. Employee Benefits* as a % of wages G-7 Comparison, Average for 12 operations Source: KPMG Management Consulting, 2002 0 20 40 60 80 Germany France Italy Japan U.K U.S.A Canada Other BenefitsStatutory