Best and Worst Major Cities for Business Tax Burdens: C.D. Howe Institute

On April 23rd, 2020, the C.D. Howe Institute released a report which identifies the best and worst major Canadian cities for business investment as measured by overall tax burdens.

The link to the reports is here; “Business Tax Burdens in Canada’s Major Cities: The 2019 Report Card.”  Authors Adam Found and Peter Tomlinson compared business tax burdens in 10 Canadian municipalities, the largest in each province.

“Municipalities and provinces would do well to pay attention to business tax burdens, particularly those imposed by business property taxes, since they impede investment and businesses’ ability to survive and invest after the present pandemic,” says Found.

Before a business decides to locate or expand in a given jurisdiction, it must consider the tax implications of such an investment.

Heavy tax burdens reduce potential returns, driving investment away to other jurisdictions and, with it, the associated economic benefits.

Found and Tomlinson estimate the 2019 Marginal Effective Tax Rate (METR) for the largest municipality in each province by aggregating corporate income taxes, retail sales taxes, land transfer taxes and business property taxes. Their findings measure the tax burden on a hypothetical investment that has the same net-of-tax return regardless of where in Canada it is located.

What Did They Find?

That municipal business tax burdens are highest in Montreal, Halifax and St. John’s, while near the group average in Calgary, Charlottetown and Moncton.

The most competitive municipal business tax environments were found in Vancouver, followed by Saskatoon, Toronto and Winnipeg.

I’d be curious to see if there was any consideration given to the associated costs which impact businesses in these markets, such as the cost and availability of parking and ability of the general public to access these businesses. Certainly, an expensive parking rate which is heavily enforced by the parking police would deter customers in certain parts of these cities.

Then again, so does bad signage…

Nonetheless, the bottom line is this. If the cost of investing in a Canadian jurisdiction is higher than the cost of investing elsewhere, then that jurisdiction’s capital stock will be smaller than it otherwise would be, because businesses go where the costs are cheaper so they can try to make more money.

The higher the METR (tax rates), the greater the investment loss and overall economic harm.

Tax dollars are important for budgeting purposes because jurisdictions use those dollars to support expenditures. When the tax base erodes, either taxes are increased, expenditures cut, or debts and deficits increased.

Calgary’s experience with depreciating property values was also discussed in this report, because in that city, as the assessed values of downtown office buildings depreciated rapidly, that caused unmanageable tax shifts onto other businesses in the city, to make up the shortfall.

“Calgary is a cautionary tale for cities across the country,” says Tomlinson. “With the current cash crunch for businesses, provincial property tax cuts – like those just announced in British Columbia – could be key to businesses’ survival.”

Read Full Report

The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada’s most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.

Looking After Canadians Tax Interests During and After COVID-19

The COVID-19 pandemic has changed the way Canadians do business for now, for the immediate future and possibly forever. One thing, however, that has not changed forever, is taxation.

Yes, the government of Canada has pushed off some tax filing deadlines, paused Canada Revenue Agency (CRA) collections actions, and provided “benefit” payments to those in need (and those who don’t really need), but in the midst of this massive outlay of money, there are some key facts to keep in mind to keep you safe and secure.

1. File Your Taxes

Life will go on, businesses will slowly open, and people will get back to work. As of the writing of this post, April is coming to an end, and the June 1st Personal Income Tax (T1) filing deadline is fast approaching! While any funds owing to the CRA on those taxes are not due until after August 31st, if you are going to owe and your account is going to wind up in Collections, it’s best to start making payments as soon as you can.

Don’t wait until you’re back to what resembles a “normal” work day, to realize that you cannot file your taxes because the likely response from Taxpayer Relief is that you had plenty of time while self-isolating. Don’t take that chance. You don’t need to pay interest to the CRA for filing late. File on time!

2. Beware Direct Deposit

If you signed up for any of the federal government’s “benefit” programs, and in doing so, provided the CRA with your Direct Deposit information, then you need to ensure your tax compliance is a priority for you going forward.

By giving the CRA access to your bank account, and with the current deficit of $20 billion dollars set to double due to the benefit payments, the CRA is going to be in a hurry to recoup those funds. If you delay paying, they’ll issue a Requirement to Pay (Garnishment) and take the funds from your account.

3. Do NOT Ignore CRA

Once the pandemic is under some sort of control, and life goes back to “normal”, if you are ever contacted by the CRA’s Collections department there are two things you should not be do. 1) Do not ignore them – if you get a letter or a legitimate phone call – speak to them. 2) Do not Lie. With hundreds of accounts in their collection inventories, you are just a name or number to the CRA unless you lie to them. Then it gets personal… Tell the truth. They probably know it already anyways.

4. Pause Before Bankruptcy / Insolvency

Times are tough for everyone, but if you have debts which are tax-related, or if your inability to pay other creditors is based on a tax debt, then before exchanging your tax debt for bad credit, reach out to someone who knows how the CRA works with Canadians like you, and don’t jump into something just because advertising makes you think that this “government program” is available. There are lots of better “government programs” available which can help you without something negative happening to your credit in return.

5. Explore Resolution to Tax Debts / Compliance Issues

If you are behind on tax filing – personal or corporate – owe money to the CRA, or locked in a dispute with the CRA about amounts owing? Now is the perfect time to get filed up to date, apply for Taxpayer Relief, and get the truth about your tax liability and your chances of success. Take the time to invest in yourself and resolve your tax issues.

6. Questions? 

If you have questions, ask them in the comment section. If we can answer them, we will. If you leave a valid email and the question is specific, you’ll get an email. If the answer to your question requires more information, then you’ll be asked them, and if there is an opportunity to help you further, you’ll get the truth about what benefits you, not us, not the CRA.