A new report by CD Institute has found that Vancouver, Calgary, and Toronto have some of the most competitive business property tax regimes amongst the largest cities in Canada.
But the same cannot be said for Halifax, Charlottetown, Moncton, Winnipeg, and Montreal, which have the highest overall tax burdens based on the 2018 data evaluated.
The marginal effective tax rate (METR) is central in the study’s determination of business tax competitiveness. It measures the percentage of the gross-of-tax return needed to pay business taxes on the marginal investment.
However, the report finds that provincial and municipal governments, for the most part, do not present their business tax regimes in a simple and transparent way.
“Unfortunately, many governments have business property tax regimes that are complex and opaque, making them difficult for investors and other taxpayers to interpret and understand,” reads the report.
“If relevant information is difficult to find on websites or if it is presented in obscure terms, investors will have difficulty estimating effective tax rates – even in jurisdictions with relatively simple assessment and tax policies. By contrast, public availability of relevant information can mitigate the difficulties of accounting for complex structural features.”
When the overall performances of provinces are compared, only British Columbia, New Brunswick, and Prince Edward Island excelled with an overall ‘A’ grade. Alberta was rated a ‘C’ while Ontario and Quebec both received a ‘D.’
“We evaluate each jurisdiction against the following ideal: the effective business property tax rate applicable to a property investment is readily ascertainable from a government website,” the report continues.
“None of our 20 jurisdictions (10 provinces and the largest city in each province) currently meets this ideal; Canadian governments have much to improve upon in making their business property tax systems simpler and more transparent.”
The study also compared the business tax burdens of select major cities in the United States — Boston, Chicago, New York, San Francisco, and Los Angeles — and found that there is still a Canadian advantage. While business tax cuts have given America’s business tax environment a substantial enhancement, this advantage is neutralized when state taxes and land transfer taxes are accounted for, along with local taxes.
“Once governments better understand the effect of business property taxes on competitiveness, they are more likely to reduce the burden these taxes impose,” adds the report.
“To facilitate the inclusion of business property taxes in METR estimates, provincial governments should simplify their property tax systems and make the data needed to determine effective property tax rates readily and freely available.”
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