Heat grows on Flaherty for interest deductibility change

Finance minister Jim Flaherty is underpressure to rethink a recent tax policy change that some in the business community say will hurt Canadian companies.

The new policy was an unexpected part of the March 19 federal budget. It restricts the ability of Canadian companies to deduct the interest costs on money they borrow to expand abroad.

The change was designed as a measure to close a loophole relating to offshore tax havens. Butcritics say the effect will be to make Canadian companies less competitive and more vulnerable to foreign takeovers.

The tax firm Deloitte called the measurethe most fundamental change in the tax treatment of foreign investments in 35 years.

Deloitte officials wrote to Flaherty, urging him to rethink the move.

"We are concerned that this proposal removes a key source of fiscal competitiveness for Canadian companies at a time when they can least afford it," a Deloitte statement said. "We fear this proposal will contribute to the disappearance of more Canadian-based companies as well as the jobs they represent."

Flaherty has defended the thrust of the new policy but told reporters on Tuesday that he would listen to the arguments he's heard from the business community.

"I'm going to spend some time on it now," Flaherty said. "The principle is sound but we can always work on process."

Liberal Leader Stéphane Dion led off Wednesday's Question Period with a mockingplea to Prime Minister Stephen Harper.

"Will the PM help his minister spend some time on it now?" he asked.

The interest policy change, along with the government's flip-flop on the taxation of income trusts, will make Canadian companies mucheasier to acquire, Dion said.The Liberals have raised the issue every day this week.