Canadian Business Tax System Complex and Costly, Study Finds

May 12, 2008

Companies Pay Or Collect 49 Different Taxes, More Than Twice As Many As In The U.K.

Canada’s business tax system is complex and costly, challenging the country’s ability to compete internationally, a new study by PricewaterhouseCoopers (PwC) shows.

The 2007 Total Tax Contribution survey is based on a framework developed by PwC in the United Kingdom and encompasses all taxes paid by a company as well as all taxes collected by the company from its employees and customers on behalf of governments.  A company’s total tax contribution is therefore a measure of its total impact on government revenues.

The survey found that companies in Canada are subject to 49 different taxes and 18 other payments to governments at the federal, provincial and municipal level.  Adding to the complexity of Canada’s tax system, companies are subject to more than 200 possible “taxing points” — the number of tax obligations a business would be required to fulfill if it were subject to all taxes in all jurisdictions.

On average, the companies that took part in the survey spent $2.1 million a year to comply with these taxes.  The average time spent on compliance was 19,863 hours, which translates to 2,483 eight-hour days or the equivalent of 11 full-time employees dealing solely with tax compliance.

According to the survey, the tax burden on companies in Canada is significantly higher than the burden on businesses in the United Kingdom.  U.K. companies pay or collect 21 different taxes, fewer than half the number of taxes encountered by companies in Canada.

“While recent tax reforms have produced real savings for many corporations, the tax landscape in Canada still presents numerous challenges,” says Tom O’Brien, a tax partner with PwC in Canada. “Money and time spent on complying is money and time not invested in research and development, product development and other business improvements, which obviously hurts Canada’s overall competitiveness.”

In addition to taxes borne directly by companies, businesses make a significant contribution to government revenues through their obligation to collect and remit a wide range of other taxes.  The 39 companies that took part in the survey collected a combined $19.8 billion in taxes in 2006 on behalf of all Canadian governments.  For every dollar they paid in corporate income tax, survey participants paid a further $0.82 in other business taxes and remitted $3.41 in taxes collected from their employees and customers.  The major taxes collected by companies in Canada, as identified by survey participants, were personal income taxes withheld from employees, fuel duties, GST and excise duties.

According to the survey, a relatively small number of companies contribute the largest proportion of the total taxes borne and collected.  The companies responsible for the 10 largest tax contributions in the survey (a quarter of the respondents) contributed 64 percent of the taxes borne and 68 percent of the taxes collected in 2006.

Of the 49 taxes identified in the study, 34 were paid by the companies themselves and 21 were collected by companies and remitted to governments (some taxes are both borne and collected by the company).  One measure of the inefficiency of the tax system is that half of the 34 taxes paid by survey participants accounted for only 8 percent of the total taxes paid by those companies.

PwC’s Total Tax Contribution survey was sponsored by the Canadian Council of Chief Executives (CCCE), a non-partisan organization that represents 150 CEOs of major Canadian companies and leading entrepreneurs.

The survey illustrates the critical role played by Canada’s largest businesses in paying for the many services provided by governments, said Thomas d’Aquino, the CCCE’s Chief Executive and President.  “Canada’s largest enterprises are well recognized as drivers of innovation and productivity, but many Canadians do not appreciate how important they are as taxpayers,” Mr. d’Aquino said.  “The activities of even a handful of major enterprises can generate tens of billions of dollars in tax revenue.  If Canadians care about maintaining high-quality public services, we need to ensure that public policies encourage the growth in Canadian communities of enterprises with the scale to compete and win globally.”

Methodology

PwC’s Total Tax Contribution framework was used as the basis for collecting information on the total business taxes borne and collected in Canada by participants for the last two financial years.  The information collected from survey participants relates only to their Canadian financial and taxation data.  Any foreign taxes have been excluded.

The survey population included a cross-section of Canadian businesses and member companies of the CCCE.  Of the 39 participants, 32 were listed on the Toronto Stock Exchange and seven were Canadian-owned private businesses, partnerships or income trusts.  Survey participants represented a broad range of industry groups within the Canadian economy.  The CCCE membership and survey participants constitute a significant proportion of large business in Canada.  The participants listed on the TSX have a market capitalization of over $700 billion.  In addition, the survey participants include 20 (33 percent) of the S&P/TSX 60, comprising 61 percent of the index’s market capitalization.  Reported annual revenues of survey participants ranged from less than $500 million to $17 billion, with an average of $4.8 billion.