In broad terms, an abatement is any reduction of an individual or corporation’s tax liability. The term commonly refers to tax incentives that attempt to promote investments that boost economic growth or provide other social benefits. For instance, local governments may offer abatements to cover the cost of building new infrastructure to incentivize development, or they may offer abatements to charitable organizations to encourage social welfare programs.
Abatements can also correct for over taxation, and an individual or corporation can request an abatement to lower a property tax bill if they believe the property is overvalued. In addition to lowering the assessed value of property, abatements can come in the form of a reduced taxation rate, tax rebates, or waiving tax penalties.
On the federal level, the critical abatement any accountant or bookkeeper should know is the federal tax abatement for corporations. As of 2017, that provides a flat 10% reduction to the federal corporate income tax rate. This abatement reduces your client or company’s Part I taxable income. Eligible income must come from activities in a Canadian province or territory and does not include income that is exempt under paragraph 141(1)(t), which applies to insurance companies that cover the property of farmers or fishermen.
On the local level, abatements can vary by city, municipality, and territory. It’s important to spend the time familiarizing yourself with your tax abatements on both a local and federal level. Taking advantage of abatements can reduce your company or client’s tax bill, but it can also help management make decisions about how to invest in future business growth based on available tax benefits.