Canadian Manufacturing

Corporate tax burdens higher in provinces without HST: report

Report called for uniform corporate tax rates in Canada of 11 per cent federally, nine per cent for provinces

February 5, 2015  by Andy Blatchford, The Canadian Press

OTTAWA—Retail sales taxes have played a big part in saddling businesses in Manitoba and British Columbia with tax burdens on investments that rival those in some of the world’s largest industrialized countries, a new study shows.

The corporate tax burden in the two provinces ranked fifth and sixth, respectively, last year among the 34 countries of the Organisation for Economic Co-operation and Development (OECD), the University of Calgary report said.

Manitoba registered a rate of 27.9 per cent, while B.C. came in at 27.5 per cent.

Saskatchewan’s rate of 24.3 per cent earned it a rating of No. 12 on the 2014 list, which ordered jurisdictions based on tax competitiveness.


The study highlighted the common denominator for the trio of highest-ranking provinces: None has sales taxes that are harmonized with the federal GST.

That means their companies are forced to pay retail sales tax on capital investments like computers, said tax policy expert Jack Mintz, who co-authored the study with Duanjie Chen.

“It’s pretty high,” Mintz said in an interview. “That’s why it hurts competitiveness.”

Corporate tax rates in both Manitoba and B.C. also exceeded the OECD average of 25.3 per cent.

The study compared different jurisdictions by looking at their marginal effective tax rates, which includes corporate income taxes, sales taxes on capital purchases and other capital-related taxes.

Mintz said B.C.’s marginal tax rate was close to the Canadian average of roughly 19 per cent when its sales tax was harmonized with Ottawa.

But it shot back up when the province opted in 2013 to abandon the harmonized sales tax (HST), he noted.

“It’s kind of like shooting themselves in the foot, unfortunately,” he said.

New Brunswick had a 2014 marginal tax rate of 4.8 per cent, lower than any province or OECD country, the study found.

At the other end of the scale was France at 36 per cent; the U.S. was at 35.3 per cent and Canada 18.8 per cent.

In 2012, Canada had the 19th highest tax burden on medium and large corporations of any OECD country, the study noted.

Last year, Canada was 14th.

That trend is due in large part to the fact other countries have become more competitive through their own tax reforms, said the study, which recommends Ottawa and the provinces cut corporate tax rates to boost revenues and broaden their tax bases.

It also calls for uniform corporate tax rates—11 per cent federally and nine per cent for the provinces.

The subject of corporate tax rates surfaced recently as federal politicians start preparing for the next election, scheduled for October.

While the federal Conservatives have lowered corporate rates in recent years, NDP Leader Tom Mulcair has said a New Democrat government would raise the 15 per cent rate closer to the OECD average.

Mulcair has also proposed dropping the tax rate for small businesses to nine per cent from the current 11 per cent as a way to kick-start the sputtering economy.

Nicholas Bergamini, a spokesperson for federal Finance Minister Joe Oliver, declined to say whether the government has plans to make adjustments that would affect the corporate tax burden.

“We can’t offer comment on upcoming budget measures besides saying ‘stay tuned,'” Bergamini wrote in an email.

The study also recommended that Alberta, which famously has no retail sales tax, introduce a harmonized version of one in order to be able to finance personal and corporate tax cuts and improve its competitiveness.

Alberta Premier Jim Prentice said he has no intention of hiking corporate taxes in order to offset the economic damage inflicted by plunging oil prices.

Doing so would contribute to the decline by scaring off investment and killing jobs, Prentice warned.

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