Copyright thestar
There’s not much that Canadians get more fired up over than competition with the United States. Our “elbows up” attitude says it all: whether it’s on the rink, in the pool or in the marketplace, it’s a matter of national pride and expectation that we perform at our best and come out on top. Unfortunately, our politicians from coast to coast have not been as competitive when it comes to tax policy, and thanks to the trade war with the U.S., we’re starting to see the consequences. In August, Statistics Canada reported a 1.6 per cent annualized decline in real GDP — the first quarterly drop in nearly two years. While the 27 per cent export decline made most of the headlines, there was also a major hit to business investment, which fell 10.1 per cent; its sharpest non-pandemic drop since 2016. That’s a trend that Canada cannot afford to let continue. We need businesses both domestic and foreign to invest their dollars here. But in order to do that, Canada needs major improvements to our tax competitiveness with the U.S. sooner rather than later. By contrast, the U.S. has become an increasingly competitive place to do business, particularly with recently extended and expanded tax advantages for businesses. The Canadian Federation of Independent Business (CFIB) recently analyzed taxes in all Canadian provinces and 20 major U.S. states with significant economic ties to Canada. The results, unsurprisingly, are bad: Canada’s tax burden is uncompetitive, and risks driving investment south of the border. On average, a small business pays 23 per cent more in taxes in Canada than they would pay in the United States. Canadian provinces — Quebec, New Brunswick, Newfoundland and Labrador, PEI, Nova Scotia and Ontario — round out the top six highest tax burdens for small businesses among analyzed jurisdictions. In fact, 15 states rank as better tax environments before you get to Saskatchewan, the top performing Canadian jurisdiction for small businesses. Canada fares no better for micro businesses as they pay 20 per cent more in taxes and take the top five highest tax burden spots. British Columbia edges out Saskatchewan as the best performing jurisdiction, once again behind 15 states. If you’re a business owner looking to expand your operations, or an entrepreneur looking to open a new venture, the United States’ tax system is far more attractive as it allows more money to stay in the business to reinvest in employees and operations. The disparity between Canada and the U.S. could be worse if not for Canada’s federal and provincial small business tax rates; and even then, the nine per cent federal rate is still significantly higher than the personal income tax rates that the same business would pay in the U.S. Some states, such as Florida, Texas or Wyoming don’t have any state income tax at all. And that’s before even considering the extra layer of taxation Canadian business owners need to worry about when paying themselves, when in the U.S. no such additional layer exists; or the indirect impact of higher Canadian sales taxes, which were not assessed in the report. The picture is grim, but it doesn’t need to be permanent. In order to maintain and improve our standard of living, we must boost our economy. The best way to do this is to decrease the tax burden so Canadians can reinvest in the economy, particularly in the businesses creating the goods and services we need. All levels of government have a role to play here. We can start with corporate income taxes. The tax rates above and below the small business tax threshold — $500,000 federally and between $500,000 and $700,000 depending on the province — should be reduced, with the lower rate reduced to 0 per cent. We know this is possible. Manitoba has had a 0 per cent small business tax rate for years and is one of the better performing Canadian provinces in CFIB’s report as a result. Additionally, both provinces and municipalities need to reduce the property tax burden for businesses. Property taxes are often disproportionally levied onto commercial properties over residential and are unfair as they often use fewer services. Elbows up is good rhetoric for talking about competition with the U.S., but Canada’s small businesses are playing with a broken stick. We need to fix that by making sure Canadian business owners are competing on even ground. Let’s fix the equipment, level the ice, and give them the chance to win.
