From: AlanBaggett@volcanomail.com   
      
   You can thank provincial taxes for Canada's higher overall tax rate :CRA SOTW   
      
    Ottawa's true rate is cheaper than its U.S. counterpart, so it's really up to   
   the provinces to help fix our corporate competitiveness issue   
      
      
   By Julius Melnitzer   
   The role of provincial tax rates is frequently lost in the brouhaha over the   
   negative impact that U.S. tax reform will have on the Canadian economy.   
      
   “The difference in U.S. and Canadian corporate tax rates is caused by   
   provincial tax rates that are much higher than state corporate taxes,” says   
   Barry Horne of Halifax, a corporate and tax lawyer who is co-chair of McInnes   
   Cooper’s cross-border    
   group. “It’s true that Canada’s corporate tax rate is nominally 25 per   
   cent, but there is a 10 per cent federal abatement that allows the province to   
   impose their own taxes.”   
      
   Comparing the nominal federal rate of 25 per cent with the U.S. rate of 21 per   
   cent, then, is misleading. Head-to-head, Canada’s true federal rate of 15   
   per cent maintains a six per cent advantage over its U.S. comparable.   
      
   And to its credit, the federal government has been proactive in this arena.   
      
   “Over the past 10 years, the federal tax rate has declined four per cent to   
   15 per cent, but the vast majority of provinces have not reduced their   
   provincial corporate tax rate at all during this time,” says Brad Coutts, a   
   financial planner at Nicola    
   Wealth Management in Toronto. “The only province with meaningful reductions   
   in the general corporate tax rate is Ontario.”   
      
   Canada’s corporate tax rate is nominally 25 per cent, but there is a 10 per   
   cent federal abatement that allows the province to impose their own taxes    
      
   The fact that Canada still has overall rates higher than those in the U.S.,   
   then, lies squarely at the feet of the provincial governments.   
      
   Nova Scotia and Prince Edward Island, at 16 per cent, have the highest rates.   
   British Columbia (11), Ontario (11.5) and Quebec (11.8) have the lowest.   
      
   Only one U.S. jurisdiction, Iowa, at 12 per cent, has a tax rate higher than   
   the lowest provincial rates. Most states’ rates are below 10 per cent.   
   Nevada, Ohio, South Dakota, Texas, Washington and Wyoming don’t have a   
   corporate income tax at all.   
      
   “So B.C., which used to have the lowest combined corporate tax rates in   
   North America, now has the 24th-highest rate,” Horne says. “Nova Scotia   
   and P.E.I. have the very highest.”   
      
   To be sure, tax rates are but one consideration in determining the overall   
   effective corporate rate.   
      
   “It’s important to determine how income is calculated in each   
   jurisdiction,” Horne says. “But having said that, the new accelerated   
   depreciation rules under tax reform give the U.S. an important advantage.”   
      
   “The new rules allow American businesses to immediately expense tangible   
   property that has a life of 20 years or less,” Coutts says. “Canada’s   
   capital cost allowance system in general allows corporations to deduct only a   
   small portion of their    
   asset purchases annually, and the way the declining balance rules are   
   structured, Canadian companies may frequently never get to fully deduct the   
   entire cost.”   
      
   Further complicating a comparative assessment of U.S. tax reform is the fact   
   that four states tax gross receipts rather than income and six states have   
   higher graduated rates.   
      
   “Taxing gross receipts is generally thought to be very punitive because   
   companies could be forced to pay large amounts of tax even when they are not   
   profitable,”Coutts says. “Higher graduated corporate tax rates are thought   
   to be ineffective    
   because they just encourage tax planning that will allow them to split up the   
   company and find ways to lower their taxable income to avoid the higher   
   corporate tax rate.”    
      
   And while the U.S. does not have a small business tax rate for the first   
   $500,000 of taxable income, as Canada does, the tax system does allow small   
   businesses to structure as “flow-thru entities,” which may result in them   
   paying no corporate tax at    
   all.   
      
   “Flow-thru entities can in some circumstances be even better than the   
   special rate for small business because the income can flow directly to the   
   owner, who may then be taxed at lower marginal rates,” Coutts says.   
      
   American small business owners who are married with children can income split   
   by filing as couples. In Canada, where the federal government introduced   
   punitive taxes in 2018 on “income splitting dividends” paid to spouses who   
   play no active part in    
   the business, income splitting is much more difficult for small business   
   owners.   
      
   All this having been said, the fact remains that most of Canada’s provinces   
   have so far shown little initiative or foresight in dealing with the   
   competitive threats arising from tax reform in the U.S.   
      
   “The provinces should be doing more to lower Canada’s corporate tax rate   
   and increase our competitiveness,” Coutts says. “It is important to   
   remember that people, corporations and capital are all more mobile than ever   
   before and they will go    
   wherever they think it is best for them.”   
      
   -----------------------------------------------------------    
   Miss a Tax Tale Miss a lot!    
   Pop the link below into your browser to view the entire CRA SOTW    
   Library!    
   http://canada.revenue.agency.angelfire.com    
   ------------------------------------------------------------    
   Alan Baggett - http://www.taxcollectorsbible.com/ - Tax Collector's Bible    
      
   --- SoupGate-Win32 v1.05   
    * Origin: you cannot sedate... all the things you hate (1:229/2)