Tax Advantages
The City of Toronto ranked in the top five of 41 major cities surveyed in KPMG's Competitive Alternatives 2012 Special Report: Focus on Tax, which compares the total tax cost of major international cities with metro area populations of at least two million.
The report captures the total tax costs facing businesses, including income tax, capital tax, sales tax, property tax, miscellaneous local business taxes and statutory labour costs.
Since the tax rates used in the report were those in effect as of January 1, 2010, Toronto's impressive results did not take into account Ontario's recent commitment to further reduce corporate income tax or the city's own planned reduction in business property taxes.
Key Findings of KPMG's Focus on Tax Special Report:
- Toronto is one of the most tax competitive cities in the world, ranking 5th overall on the total tax index.
- Canada is one of the most tax competitive countries in the world, ranking 2nd of 10 countries surveyed and scoring 63.9. When compared to the United States, which ranked 6th with a score of 100, Canada's total tax costs are 36.1% lower.
- Canada ranks 2nd across manufacturing, corporate & IT services and R&D industry sectors.
- Toronto ranks 5th in the manufacturing and corporate & IT services industry sectors.
- Toronto ranks 7th in the R&D industry sector.
Download KPMG Competitve Alternatives 2012 Tax Report
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Changing Tax Structure for Business Growth
Both the federal and Ontario governments have taken steps to reduce Corporate Income Taxes (CIT), directly benefiting companies in Toronto. This significant initiative builds on existing corporate tax relief, such as the elimination of the capital tax for manufacturers retroactive to 2007 and complete capital tax elimination as of July 1, 2010.
Summary of Tax Changes
- General and manufacturing CIT rates lowered
- Small business CIT rate cut from 5.5% to 4.5%
- Small business deduction surtax eliminated
- Capital tax eliminated for manufacturing and resource activities
- Capital Cost Allowance (CCA) rate for computers, machinery and equipment accelerated
- Modern, value-added single sales tax implemented
- Ontario's Marginal Effective Tax Rate (METR) on new investment to be reduced by half, from 32.8% to 16.8%
- One-time transition support for small businesses provided
- Business costs on inputs taxable under the current system reduced
Effective July 1, 2010, the Retail Sales Tax (RST) was replaced by a modern value-added tax to be combined with the federal Goods and Services Tax (GST) to create a federally administered Harmonized Sales Tax (HST).
Implementation of the HST will reduce business costs in 2 ways:
- Businesses can now claim an Input Tax Credit (sales tax refund) on the full value of the sales tax rather than on the federal portion only, as was the case previously. This means businesses will no longer pay sales tax on the majority of their inputs.
- With the total sales tax now harmonized and collected by one source (the federal government), administrative and reporting costs for businesses will be significantly reduced. It has been shown that these cost savings are typically passed on to consumers.
Marginal Effective Tax Rate (METR)
The METR is the effective tax rate that a business could expect to pay on any new business investments. It is calculated as the share of the gross rate of return on capital,(Chen 2000). The declining METR in Ontario helps support corporate investment while also helping the Ontario and Canadian governments counteract income shifts that erode the tax base. Income shifts are caused by the reallocation of profits from high to low tax areas of the world by multinational corporations.
Figure 1
Cutting Ontario's METR on New Business Investment in Half
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As shown in Figure 1, the implementation of a modern HST (value-added tax) and the elimination of the Capital Tax result in a 50% reduction of Ontario's Marginal Effective Tax Rate (METR) from 32.8% to 16.2%. This makes Ontario one of the most competitive jurisdictions in the industrialized world for new investment. In addition, when the proposed tax rate cuts are fully implemented, the combined federal-provincial CIT rate of 25% will be lower than the current average corporate combined federal-state CIT rate in the US Great Lake states.
Ontario's position as one of the best and safest places in the world to invest is reinforced by other public policy decisions that help to improve competitiveness, such as investments in infrastructure, skills training and innovation.
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Tax Structure
Federal Corporate Taxes
Canadian resident corporations that pay federal taxes can be generally divided into two types:
- Canadian Controlled Private Corporations (CCPC) which are eligible for the Small Business Deduction (SBD) on income below $500,000. For Canadian-controlled private corporations claiming the SBD, the net tax rate is 11%.
- Corporations that are not CCPC's, and which are not eligible for the SBD. The net tax rate for these companies is 15% (Canada Revenue Agency Website, 2012).
Provincial Corporate Taxes
Basic rate
The Ontario Small Business Deduction tax rate has been reduced to 4.5% effective July 1, 2010.
The Ontario basic income tax rate is currently 11.5%.
Municipal Property Taxes (Residential & Commercial)
On October 22, 2007, Toronto City Council approved the Update to Enhancing Toronto's Business Climate status report that highlights 12 new initiatives to enhance the City's competitiveness over the long term.
As part of its overall strategy to enhance Toronto's business climate, the City continues to reduce its tax rates for commercial, industrial and multi-residential properties to an approved target of 2.5 times that of the residential tax rate. The City expects to reach this targeted tax ratio for small business two years earlier than expected, (by 2013 instead of 2015), and three years earlier than expected for all other non-residential properties, (by 2017 instead of 2020).
| Property Type |
Total Tax Rate |
| Commercial General* |
3.18% |
| Residual Commercial Band 1** |
3.01% |
| Residual Commercial Band 2** |
3.18% |
| Industrial |
3.19% |
| Residential |
0.77% |
Source: City of Toronto http://www.toronto.ca/taxes/property_tax/tax_rates.htm
* Commercial General Tax Class
This tax class includes shopping centres, large office buildings, parking lots, vacant land and large sports facilities based on the property's classification as determined by the Municipal Property Assessment Corporation (MPAC).
** Residual Commercial Tax Class
This tax class includes all other commercial property types that are not specifically included in the "Commercial General" tax class as noted above.
For properties in the “Residual Commercial” tax class, a lower tax rate applies to the first million dollars of a property's assessment (Band 1). The portion of the assessment above one million dollars is taxed at the "Commercial General" tax class rate (Band 2).
Canada already has the lowest payroll taxes among G7 countries, and by 2012 Canada's federal corporate income tax rate will fall from 18% in 2010 to 15%, less than half of the top US federal marginal rate. Canada is on track to have the lowest corporate income tax rate in the G7.
For a company earning $100 million in profit, total taxes payable in Canada will amount to $27.2 million, compared to $39.2 million in the US.
Net Debt-to-GDP G7 Countries & Ontario, 2009
/Competitive-Advantages/Incentives-and-Tax-Advantages/Tax-Advantages/Net-Debt-to-GDP-G7-Countries---Ontario,-2009.aspx
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Revenue Agencies
Canada Revenue Agency This page provides information, services and applications that help promote compliance with Canada's tax and regulations.
Ontario Ministry of Revenue The Ontario Ministry of Revenue administers the province's major tax statutes, tax credit and benefit programs. The tax revenues collected provide the fiscal foundation upon which many of the province's programs are based.
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Invest In Canada's Flagship Report: 2012
The Flagship Report provides Canada’s value proposition to foreign investors. It offers a comprehensive presentation of Canada’s conducive business environment and presents the wealth of business opportunities in 7 leading-edge sectors.
Year: 2012
Categories:
Business Environment, Invest Toronto
Paying Taxes 2012: The global picture
Our Paying Taxes study demonstrates again that reform of tax systems
around the world is continuing. There is an increasing focus on improving
the administrative aspects of tax systems including the use of electronic
ling and payment for tax returns, the reduction in the number of taxes
per base and an increasing use of self assessment procedures.
Governments, business and civil society all benet from a fair, stable
and sustainable tax system which can help to encourage growth. rticles
included in this report continue to demonstrate the engagement of
government with tax reform giving insights into how the Paying Taxes
data has been used and providing details of the reforms that have been
and are being implemented.
Year: 2012
Categories:
Tax Advantages, Toronto's Cost Advantages
Tax Facts and Figures: Canada 2010
Tax Facts and Figures will help identity and understand the tax rates and tax changes that apply to companies.
Year: 2010
Categories:
Business Costs, Incentives & Tax Advantages
Taxation and Tax Incentives in Ontario: Your Essential Guide
This publication is an indispensable reference tool for anyone or any entity that does business in Ontario or is considering doing business in Ontario. It will also help if you live in Ontario or might move here.
Year: 2011
Categories:
Tax Advantages, Toronto's Cost Advantages
The Path to Prosperity: Internationally Competitive Rates and a Level Playing Field
In the report the CD. Howe Institute assess the affects of tax reduction policies of both the federal and provincial government in recent years.
Year: 2009
Categories:
Business Costs, Incentives & Tax Advantages
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