In Search of Tax Excellence

April 2009

Danielle Smith, Director of Provincial Affairs
Andreea Bourgeois, Director of Provincial Affairs
Marvin Cruz, Research Analyst
Plamen Petkov, Senior Policy Analyst


Executive Summary

There are many reasons why a small- or medium-size enterprise (SME) chooses to locate in a particular geographic area. A highly educated workforce, access to good transportation routes, a low crime rate, relatively low input costs, and a robust consumer market are among the factors that are influential in determining business location decisions. The tax system of a given province, however, can help attract or deter investment in a particular geographic area.

The Canadian Federation of Independent Business (CFIB) has produced an index to gauge the competitiveness level of provincial tax systems. The unique aspect of CFIB’s research is that it examines elements of the provincial tax system through the lens of the SME owner. It encompasses 65 indicators in five major areas of the tax system—premiums and payroll taxes; corporate income taxes; property and capital taxes; personal income taxes; and sales and excise taxes. This has never been attempted before, at least not for the Canadian smalland medium-size business sector. The ultimate goal of this study is to produce a framework that can be used to measure and compare developments in provincial tax policy from the small- and mid-size business perspective.

Alberta tops the list with an overall score of 7.98 out of 10, with Ontario and Quebec faring the poorest at 4.10 and 4.02 respectively. Scores are also shown for each of the five main tax areas. The overall relative scores for each province vary significantly, a clear sign that tax treatment for smaller firms differs according to province. It is CFIB’s intention that these scores be incorporated into provincial policy development as a way to create a tax system that embraces, not hinders, the growth potential of smaller firms. Given that Canada depends on the SME sector for its economic growth and vitality, it is critical that policymakers have greater insight as to how the tax system impacts smaller businesses.