Why Canada’s inefficient corporate tax rules need to be streamlined

A new survey published by PricewaterhouseCoopers uncovers numerous overlaps and redundancies

Tax Week

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A new survey on Canadian corporate tax published by PricewaterhouseCoopers uncovers numerous inefficiencies in Canada’s current tax policies. “Corporate income tax (CIT) gets most of the attention, but it’s actually just one of the many ways large companies contribute to public finances,” said Lincoln Schreiner, a tax services partner at PwC Canada. Large Canadian companies pay at least 68 different types of taxes, fees and royalties. In order to meet their tax obligations, the 89 companies surveyed hire 19 full-time equivalent staff and spend, on average, $3.96 million annually to comply with Canadian tax legislation.

The companies surveyed provided employment to more than 1.1 million people, and comprised nearly 20% of all federal corporate tax collected on business profit in the country. They include banks, retailers, energy producers, telecommunication providers and more. Here are the key findings from the survey:

1. Governments take a large share

The three levels of government—federal, provincial and municipal—take the largest share of the annual total value distributed by the 89 firms surveyed. The companies paid out $77.5 billion (42.1%) in Total Tax Contribution (TTC), royalties and other fees to the government—ahead of employee payroll (28.3%)  and dividends to shareholders and business reinvestment (28.3%).

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2. Total Tax Contribution

The total tax contribution for the firms in 2014 was $68.5 billion: $41.2 billion in taxes collected and $27.3 billion in taxes borne. They also spent $9 billion in other payments such as royalties.

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Put another way: For every dollar of corporate income tax disbursed, companies paid an additional $1.09 in non-profit type taxes, $0.70 in other payments to governments, and $3.15 collected  from customers and employees, and remitted to governments.

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3. Government earnings from corporate tax

Out of the data on 56 Canadian taxes borne and collected by the governments provided by the surveyed firms, the federal government collects 61% of the $68.5 billion TTC, based on 19 federal taxes. 32 provincial taxes accounted for 33% of the TTC, and the remaining 6% was collected through municipal taxes.

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The survey concludes that in order for the Canadian tax system to remain internationally competitive to promote job-creating investments in the country, the number of business taxes imposed across the country should be reduced. PwC recommends that smaller taxes that generate little revenue but are time-consuming and costly for governments to collect should be the first to go.