Small business death and taxes

See also:
• Tax tips for ’09
• Tax brackets, figures and details for your practice (the 2009 edition)

No matter where your clients are located, the tax and accounting experience can be expensive, particularly for business owners who need to collect and remit more than 30 different types of taxes levied by federal, provincial and local levels of government.

If they’re in a position to decide where they’d like to do business, however, it’s quite possible that a change of scenery could actually reduce their tax bills.

In its own words, the CFIB’s tax research program was created to conduct in-depth analysis on issues affecting Canadian businesses. The report, entitled In Search of Tax Excellence, says “tax created distortions are alive and well in Canada.” The 58-page document examines the different provincial tax regimes, indexing them for analysis, using the small and medium business owners’ point of view to determine the competitiveness of, and the costs related to each.

The report’s authors say overall relative scores for each province vary significantly.

Not surprisingly, Alberta’s score put the province at the top of the list, thanks to the province’s resource revenues, the complete absence of provincial sales tax and low corporate income taxes. After the province eliminated health care premiums on January 1, 2009 (measured in the premium and payroll tax sub-index of the study), its position looks even more attractive.

In other parts of the country, New Brunswick scores second overall, but doesn’t finish first in any category (sub-indexes being measured include premiums and payroll, corporate income tax, property and capital tax, personal income tax and sale and excise tax). Saskatchewan also scores well overall, thanks to the tax relief it can offer residential and business taxpayers as a result of its own resource boom; Newfoundland and Labrador appear to have the best property and capital tax regimes; and British Columbia ranks second best in personal income taxes.

On the negative side, Nova Scotia received the second worst score for its property and capital taxes and is among the bottom three provinces when it comes to corporate income taxes. Prince Edward Island ranks among the bottom three for personal income taxes, and the highest sales taxes in the country. Manitoba scores the second worst on the list for personal income taxes.

Ontario and Quebec take the bottom two rungs in CFIB’s ranking, but for different reasons: Where Quebec has inhospitable premium, payroll, and personal income taxes, Ontario performs worst when it comes to corporate income tax, property and capital taxes.

“The tax system alone is not the sole factor in attracting investment,” say the report’s authors. “However, poor government tax policy can make the risk of owning and operating a business greater than need be, and in the extreme, an excessively punitive tax regime can influence whether a firm thrives or fails.”

According to the research, 63% of business owners say payroll taxes affect business growth most, followed by 54% who say corporate income taxes have the greatest impact. Property and capital taxes, personal income taxes and sales taxes were cited by 47%, 43% and 42% of those surveyed, respectively.

Overall, provinces with best the tax climate for smaller businesses are Alberta, New Brunswick and Saskatchewan. The worst tax climates are found in Ontario and Quebec. Those in the middle, “with significant room for improvement” are British Columbia, Manitoba, Newfoundland and Labrador, Prince Edward Island and Nova Scotia.

“Provinces should strive to create a tax system that has relatively few exemptions and credits, and opt for broad-based tax changes that benefit as many firms as possible, rather than sector-specific breaks that deliver concentrated benefits to very few.”

Next: Personal and business tax tips.

(04/08/09)