A report released on Tuesday by the free market think tank, the C.D. Howe Institute has concluded that Canada has one of the highest tax burdens on investment in the developed world, and has called upon Ottawa to redesign the tax system at both federal and provincial level to address Canada's competitiveness.
According to the inaugural Tax Competitiveness Report: Unleashing the Canadian Tiger, in 2003 Canadian governments raised taxes and other revenues equal to 41.7% of gross domestic product, in the middle range of the 28 OECD countries.
However, when it comes to taxes on businesses' capital investments, Canada levies an effective tax rate of 39%. Taking into account corporate income taxes and other capital-related taxes, in 2005 Canada had the second highest effective tax rate on capital among 36 industrial and leading developing countries, the report stated.
In other key findings, the report observed much regional variation within Canada with regards to tax on investment, with Saskatchewan and Ontario having the highest effective tax rates on capital. The lowest effective rates were to be found in Newfoundland, Nova Scotia and New Brunswick.
Meanwhile, marginal tax rates on employment income for families on modest incomes were found to be as high as 60% or more as a result of payroll taxes with earnings limits and clawbacks of federal and provincial income-tested programs, while taxes on investment income for seniors on moderate incomes are even higher, reaching or exceeding 80%, the report found.
The address this situation, the Institute is urging the federal government to reduce the combined federal and provincial corporate tax rate to 25% from 34.3% whilst developing multi-year tax plans to address the many existing problems in the tax system to achieve better economic growth and a higher standard of living for Canadians.
The full text of the CD Howe report on Canada's investment tax burden can be found in the Tax News Resources section.
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