April 23, 2020 – The best and worst major Canadian cities for business investment as measured by overall tax burdens are identified in a new report from the C.D. Howe Institute. In “Business Tax Burdens in Canada’s Major Cities: The 2019 Report Card,” authors Adam Found and Peter Tomlinson compare 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.
They find municipal business tax burdens are highest in Montreal, Halifax and St. John’s, while near the group average in Calgary, Charlottetown and Moncton. Vancouver showcases the most competitive municipal business tax environment, followed by Saskatoon, Toronto and Winnipeg.
If the cost of investing in a Canadian jurisdiction is higher than the cost of investing elsewhere, that jurisdiction’s capital stock will be smaller than it otherwise would be. The higher the METR, the greater the investment loss and overall economic harm.
The authors also looked at Canada’s Accelerated Investment Incentive, a new temporary measure intended to encourage investment. They found it yields only a modest increase in overall business tax competiveness, with little-to-no impact on more than 97 percent of corporate capital investment.
Calgary’s experience with depreciating property values is also discussed. Assessed values of downtown office buildings depreciated rapidly, causing unmanageable tax shifts onto other businesses in the city.
“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.”
For more information contact: Adam Found, Metropolitan Policy Fellow at the C.D. Howe Institute; Peter Tomlinson, consultant; or Nancy Schlömer, Communications Officer, C.D. Howe Institute, phone 416-865-1904 ext. 0247, email: nschlomer@cdhowe.org.
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.