Canada – Favorable Taxes and Incentives
REFERENCES ARTICLE FROM 2014 – OUTSIDE ARTICLE
Originally appeared in The Journal of Multistate Taxation and Incentives
(Thomson Reuters/Tax & Accounting)
Volume 24, Number 8, November/December 2014
This article has been updated from its original form, which appeared in Location Canada 2013, a publication of Area Development.
Canada is one of the world’s weathiest nations, with a population of approximately 35.16 (2013) million people and the 13th largest economy in the world based on Gross Domestic Product. Often referred to as the land of a thousand stereotypes ranging from mounties and ice hockey to language wars and lousy weather, the nation may be entitled to a bit of boasting based upon the overall health and stability of the economy, strength of financial systems and success in economic development efforts.
Comprised of 13 Provinces and 3 Territories, Canada is a major exporter of oil, minerals automobiles, manufactured goods and forest products. The corporate tax rates in 26.4% in 2014, with an estimated 15% coming from the federal tax corporate tax rate and 11.5% coming from the provincial corporate tax rate. Other significant taxes include the value added tax (VAT) and a property tax. The overall tax burden amounts to a range of 25%-31% of total corporate domestic income, depending on the province.
Canada’s highly competitive regulatory framework promotes business formation and operation. With no minimum capital standards, starting a company in Canada requires only one procedure. Flexible labor regulations enhance employment and productivity growth. The Government of Canada prioritizes world-class infrastructure as a conduit for more prosperous communities, stronger economies, and a cleaner environment. The federal government works hand in hand with the provinces, territories, municipalities, and First Nations to support programs on a nation-wide scale. Provinces typically administer the federal programs on behalf of their individual regions. A prominent example of this paradigm is the Building Canada Fund, a fund allocated to individual provinces based on population whose purpose is to invest in public infrastructure owned by provincial, territorial and municipal organizations.
The collaborative effort of the federal government and the sub-federal entities it supports is proving to be successful in building a strong economic environment for growth and competitiveness throughout Canada.
While the overall health and stability of the Canadian economy is thriving, there have been some unique challenges at the provincial level, most of which have been responded to with a strategic approach to improvement and aggressive use of financial incentives to help attract new business and help existing companies grow.
The thriving economy in Alberta holds its foundation in the natural advantages of the province. Oil sands, and oil and gas make energy a key economic driver for the area. In addition to its natural resource assets, Alberta boasts one of the lowest overall tax rates in Canada and is the only province with no provincial retail sales tax. The combined federal and provincial corporate income tax is 25% for general business and 14% for small business (January 2013). On top of this favorable business environment, Alberta does not impose taxes on capital or payroll at the provincial level, as is common in other provinces and the United States.
One challenge facing the province is Alberta’s ability to maintain a strong supply of skilled labor. This challenge is especially pronounced at employers that have a large number of employees reaching retirement age. Accordingly, measures to increase the availability of skilled workers are in process, including: immigration policy initiatives, increased participation for underemployed segments of society, increasing productivity and innovation, and working to increase the awareness of job opportunities to those outside of the region. The Southeast Alberta Workforce Development Strategy includes a blueprint to inform, attract, retain, and develop the workforce in the area.
Quebec’s Economic Development efforts have recently merged with the Ministry of Finance and Tourism to form the new Ministry of Economic Development Innovation & Export Trade (MFEQ). This province offers some of the lowest tax rates in Canada with an overall corporate tax rate of approximately 27%. There are several economic development programs in place to assist growth in the region, which include:
Quebec Economic Development Program (QEDP) – The QEDP supports the economic development efforts of the region, including entrepreneurship, business performance and investment.
Community Futures Program (CFP) – The objectives of the CFP include stability, economic growth, job creation, developing and maintaining sustainable communities and competitive local economies in rural areas.
Infrastructure Programs – These programs support the improvements and rehabilitation of existing community infrastructure, including the expansion of existing infrastructure.
The incentive programs in Quebec come in the form of grants, non-repayable and repayable contributions, depending on the programs. Non-profit, public or parapublic organizations, and First Nation governments are eligible for grant programs.
The provincial corporate tax rate in British Columbia is divided into a general corporate tax rate and a small business corporate tax rate. The general corporate tax rate is 11% (effective April 1, 2013), making the overall tax rate in British Columbia 26%. The small business corporate tax rate applies to businesses with less than $500,000 in annual income and is a reduced rate of 2.5%.
British Columbia helps support its regional economic development efforts with a Venture Capital Tax Credit. These funds are in place to encourage investors to make equity capital investments in small businesses in British Columbia. This gives small businesses access to early-stage funds for growth. The credit is only applicable to provincial income taxes and can be carried over for up to four (4) years.
Nova Scotia intends to tap into its potential for innovation and productivity in its businesses and workforce using its Productivity Investment Program. The purpose if the program is to encourage businesses to become more innovative, productive and globally competitive through the use of two incentives.
Workplace Innovation and Productivity Skills Incentive – This incentive provides funds to encourage investment in workforce certifications and skills development. It can, also, be used to help companies adapt to new technologies and processes. There are cost sharing requirements based on the size of the business.
Capital Investment Incentives – With a preference given to exporters in qualified industries, this incentive contributes 20%, up to $1 million, towards the cost of technology advanced machinery, clean technology, equipment, software, and hardware. Acquisitions under $25,000 are not considered eligible for this incentive.
Ontario promotes its competitive workforce as a differentiator and engine for business growth. 64% of adults, between the ages of 25 and 64, in the Ontario province have completed post-secondary education. Ontario’s combined federal-provincial corporate income tax rate of 26.5% is lower than the average of G8 and G20 countries and lower than the average federal–state corporate income tax rate in the U.S.
Ontario offers incentive programs to support its economic development efforts including:
Apprenticeship Training Tax Credit – This tax credit is available to help offset the costs involved in the first 48 months of an apprenticeship program for certain skilled trades.
Co-operative Education Tax Credit – This is a refundable tax credit available to businesses hiring students enrolled in a co-operative educational program at an Ontario college or university.
Brownfield Financial Tax Incentive Program – This incentive provides the cancellation of all or a portion of the education property taxes for a property for up to three years to help offset the cost of the clean-up and redevelopment of eligible brownfield properties.
Ontario Business Research Institute Tax Credit – A refundable tax credit of 20% for small businesses with qualified expenses on scientific research and development that is performed in Ontario under contract with eligible research institutes.
Ontario Innovation Tax Credit – This credit can be claimed on the same expenses as those outlined in the Ontario Business Research Institute Tax Credit. It provides a 10% refundable tax credit for qualified expenses for scientific research and experimental development.
Ontario Research and Development Tax Credit – Qualifying businesses can claim a 4.5% non-refundable tax credit on eligible scientific research and development expenses and can be claimed on the same research and development as the Ontario Innovation Tax Credit.
Ontario Tax Exemption for Commercialization – To be eligible for this credit, a business must be in the field of advanced health, bioeconomy (including clean energy), telecommunications, or computer or digital technologies and be incorporated between March 2008 and March 2012. The credit provides a refund of business taxes paid in the first 10 taxation years of incorporation.
Corporate tax rates around 27% continue to place this province in a competitive environment. Manitoba has one the most diverse economies in Canada, with manufacturing making up the largest sector (10% of GDP in 2013), and finance, farming, and one of the country’s largest media companies rounding out other major industries. Manitoba is continuing to build opportunities through resources and technology, competitive corporate business taxes, and a solid workforce.
Manitoba’s Action Strategy for Economic Growth is focused on seven key areas:
- Education and Skills
- Research and Innovation
- Supporting Investment
- Affordable Government
- Growing Immigration
- Manitoba’s Green Energy Advantage
- Building Communities
Keeping economic development efforts focused on these 7 keys has set the framework for continued success in Manitoba.
A number of economic development incentives help support a steady growth in Saskatchewan. New capital investment for this province hit an all-time record of $20.2 billion in 2012, according to a report by Statistics Canada. The incentives below are aimed at offsetting the business costs of a growing corporation. Some of the incentives available in Saskatchewan include:
Manufacturing and Processing Investment Tax Credit – This non-refundable income tax credit is designed to encourage plant and equipment investment. This credit is available to all manufacturing and processing corporations with some allocation of taxable income to Saskatchewan.
Research and Development Tax Credit – This 15% credit is fully refundable for Canadian-controlled private corporations; up to $3 million for qualifying research and development expenses.
Manufacturing and Processing Profits Tax Reduction– Saskatchewan-based businesses may be eligible for a reduction of general corporate income tax rates to as low as 10% on Canadian manufacturing and processing profits.
Rebuilding New Brunswick is the economic development action plan for New Brunswick 2012-2016. Outlined in the plan are initiatives to address the challenges facing the economy in New Brunswick, including an aging population, a relatively weak labor market and limited trade initiatives.
The Northern New Brunswick Economic Development and Innovation Fund This program is specifically for the northern counties of New Brunswick and available for qualifying projects in existing companies for growth & development of capital resources, adoption of information & communication technologies, research, development & innovation, improving strategic infrastructure, and advanced workforce development. The fund will provide incremental assistance totaling $200 million over a four-year period from April, 2011 – March, 2015.
Prince Edward Island
With significant focus on innovation, Prince Edward Islands’ economic development efforts are highly innovative.
Innovation PEI – This initiative is focused on advancing economic development by investing in people, innovation and infrastructure. Key sectors that have displayed high potential for economic growth within the Province are being targeted, including, aerospace, bioscience, information technology, financial services, and renewable energy. Incentive tools available to businesses to help them attract and expand industry include;
- Innovation and Development Labour Rebate (IDLR) – A performance-based wage rebate of 25% of eligible gross payroll that can be paid out at once over a one (1) year term or partially paid out over five (5) years.
- Atlantic Innovation Fund (AFI) – This is a strategic initiative from the Government of Canada aimed at increasing Atlantic Canada’s innovation. This fund can provide assistance of 75% – 80% of eligible costs for commercial, private sector projects. Applicants seeking $1,000,000 or less of funding are not eligible.
- Tax holidays for targeted industries, are available, as are programs based on capital investment and performance based job creation
Newfoundland & Labrador
Primarily considered a fishing province, Newfoundland and Labrador struggled when the fishing industry collapsed in the early 1990’s. Often not considered a place to move “into”, but rather “out of”, Newfoundland and Labrador have made impressive recoveries with record breaking employment levels in recent years. Employers are ready to hire a strong and able workforce to continue momentum.
Economic development efforts have been strong as can be seen in the development of theEconomic Diversification and Growth Enterprises Program (EDGE) – which provides incentives to encourage significant new business investment in the province to help diversify the economy and stimulate new private sector job creation. Incentive opportunities under this program include:
- 10 year tax holiday from provincial corporate income tax to qualified businesses, followed by a five year phase-in of these taxes.
- Un-serviced crown land can be leased for nominal fees and the services of a dedicated government facilitator to the new or expanding business.
- An increased tax holiday for businesses in rural areas from 10 years to 15 years.
From a site selection perspective we observe many companies with renewed and expanded interest in exploring business opportunities in the Canadian market. It is easy to see why when one closely reviews the thriving stable economy combined with low tax rates, the availability of a well-educated and skilled workforce, proximity to markets and the aggressive use of economic development incentive tools that provide meaningful opportunities for businesses to offset costs associated with growth.
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