The 2014 edition of the firm’s Competitive Alternatives report notes that Canada has the lowest total tax cost of 10 countries surveyed, with a Total Tax Index (TTI) of 53.6. Countries are scored against a benchmark of 100 representing the U.S. tax cost, meaning that average total tax cost is 46.4% lower here than south of the border.
Lower taxation costs will enable Canada to retain more of its entrepreneurial and business talent, according to Elio Luongo, Canadian managing partner of tax at KPMG. “In order to grow your business base you have to keep what you have and get more,” he said. “If you have small and medium businesses already, they will stay here as opposed to looking for places to locate, and one of the factors of why they might stay here is because of the [low] amount of taxation that they have and the cost associated with that.”
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The report also ranks cities by local tax burden, with the top three spots in the “major international cities” (read: those with populations above 2 million) going to Toronto, Vancouver and Montreal. Edmonton topped the list for Canadian cities.
Scores were calculated based on the combination of corporate income taxes, other corporate taxes such as property or sales taxes, and statutory labor costs like pension contributions and workplace safety dues. Canada’s has fallen 5.5 points since 2012, when it also topped KPMG’s rankings.
Canada has the lowest corporate income tax rate of any country, with an effective rate of 7.2 per cent, and was among the lowest for statutory labor costs. Also studied were Australia, France, Germany, Italy, Japan, Mexico, the Netherlands, the U.K. and the U.S.
KPMG also broke down their analysis by economic sectors, with Canada topping the digital services and research & development rankings due to strong tax incentives but coming in second to the U.K. in corporate services and to Mexico in manufacturing.
Luongo says Canada needs to get better at advertising its welcoming business climate if it wants to get more overseas businesses to locate here. “Canadians are very shy about telling our story. The message that we need to get out to businesses around the world is that Canada is a great place to do business,” he suggested.
“It’s got, relatively speaking around the world, good geo-political stability, and it’s got a very competitive tax environment to locate your business and your jobs here, and it’s got a great wealth of people and talent and skills to do those jobs.”
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