Toronto, September 11, 2025 – A small business (25 employees) in Ontario pays on average a whopping 24% more in taxes than a similar firm in the United States, finds a new report from the Canadian Federation of Independent Business (CFIB) that compares tax loads in all 10 Canadian provinces and 20 U.S. states. A microbusiness (4 employees) pays 15% more in taxes than its U.S. counterpart.
On a province-by-province level, Quebec and Atlantic Canada performed poorly, with Ontario slightly ahead. Western Canadian provinces ranked a bit higher, but still significantly below the average of U.S. states analyzed in the report. Even the most competitive provinces (B.C. for micro businesses, Saskatchewan for small firms) have an average tax burden higher than the vast majority of U.S. states.
Though U.S. tariffs play a significant role in the competitiveness landscape, they are not the only competitive issue that Canadian small businesses encounter. “Ontario should consider reducing its Small Business Tax Rate, from the highest rate in Canada, 3.2%, down to at least 2%,” said Angela Drennan, CFIB’s VP of Provincial Affairs. “This, along with raising the tax deduction threshold from $500,000 to $700,000, which hasn't increased since 2007 and then indexing the threshold to inflation annually, could save small business owners up to $25,000 to reinvest into their businesses."
High payroll taxes in Ontario, such as the Employer Health Tax (EHT), were also found to have negative effects on business growth. “Ontario’s current EHT threshold is a major barrier for microbusinesses trying to expand into the small business category,” said Joseph Falzata, CFIB’s Policy Analyst for Ontario. “If the Ontario government raised the threshold to match the $2-2.25 million EHT thresholds in provinces like Newfoundland and Manitoba, the typical small business with 25 employees would save nearly $16,000 annually.”
On the local level in Ontario, municipalities should consider legislating a small business subclass, currently implemented by the City of Toronto and the City of Ottawa. The optional subclass was established by the province to provide municipalities with the flexibility to support small businesses through property tax relief. Additionally, municipal and provincial governments should reduce property taxes and close the property tax gap between commercial and residential properties.
All these actions will support improving Ontario’s tax competitiveness enabling businesses to use the tax savings to increase wages, pay down debt, expand operations, hire new employees and boost overall economic productivity.
Read the full report here.
For media enquiries or interviews, please contact:
Dariya Baiguzhiyeva, CFIB
647-464-2814
public.affairs@cfib.ca
About CFIB
The Canadian Federation of Independent Business (CFIB) is Canada’s largest association of small and medium-sized businesses with 100,000 members across every industry and region. CFIB is dedicated to increasing business owners’ chances of success by driving policy change at all levels of government, providing expert advice and tools, and negotiating exclusive savings. Learn more at cfib.ca.
Methodology
This analysis presents figures in each country's local currency. Variables were selected for each business type based on what was reasonable for their size. For small businesses and microbusinesses, these include pre-tax net income ($1 million and $150 thousand), number of employees (25 and four), and business property value ($3 million and $450 thousand). Taxes that are treated as business expenses, such as payroll and property taxes, reduce taxable income before the remainder is subject to income taxes. Local taxes (e.g. municipal property taxes) assume the business is located in the largest municipality in each province/state. Five of the most populous U.S. states were selected for the comparisons, with the remaining fifteen chosen based on their trade exposure and geographic proximity to Canada.