Calls for tax reform in Canada keep getting louder as the federal budget, set to be tabled Nov. 5, approaches. The Globe and Mail has run a series on it, while business groups, the Big Four, banks, think tanks, and accounting bodies all want a major review.
The Tax Foundation’s new International Tax Competitiveness Index, released this week, adds another layer to the debate. Each year, the Washington-based tax policy research group compares the tax systems of 38 OECD countries. Estonia tops the list again this year, while Canada lands in 15th place, the same spot as last year. Our middling ranking doesn’t scream reform now, but the overall rank, based on five tax categories (individual, cross-border, property, corporate, and consumption taxes), should be read carefully.
First, consider where we lag: Canada places 28th on individual taxes, 28th on cross-border rules, and 25th on property taxes. Inside the individual category, Canada ranks 34th on taxes on capital gains and dividends. Its top capital gains rate is 26.8 percent, against an average of 19.7 percent. Property tax collections equal 1.6 percent of the private capital stock, which is the third highest in the OECD.
Corporate taxes land in the middle at 17th. Canada’s combined federal-provincial statutory rate of 26 percent is above the OECD average of 24.2 percent, which puts it 26th on the rate alone. It does much better on how businesses can write off their investments, ranking sixth, thanks largely to an expensing provision for machinery and equipment. The index was produced before the Carney government’s September “productivity mega deduction” announcement, so it isn’t captured in the score. That measure makes full expensing permanent and extends it to more eligible assets.
Read for free
As Canada approaches its federal budget on November 5, calls for tax reform are intensifying. The Tax Foundation’s International Tax Competitiveness Index ranks Canada 15th among 38 OECD countries, highlighting weaknesses in individual, cross-border, and property taxes. Canada ranks poorly on capital gains and dividends taxes, while its corporate tax rate is above the OECD average. Although consumption taxes are relatively low, they constitute a smaller share of total revenue compared to peers. Charles Lammam argues for a shift towards less harmful taxes and a comprehensive review of the tax system in the upcoming budget.