Cost of Doing Business
2006 KPMG Competitive Alternatives Study Results
The Canadian Advantage | Ontario’s Competitive Income Tax Rates | Ontario’s Competitive Payroll Tax Rates | Employer Paid Benefits | R&D Tax Credits Supporting Innovation | Toronto Region’s Low Business Costs
The Canadian Advantage
Canada is the least costly place to do business according to the KPMG 2004 Competitive Alternatives Study. The study compares business costs in 11 industrial countries in North America, Europe and Asia-Pacific, including all G7 countries.
The business costs covered in the study are:
- Land/building/office costs
- Labor wage/salary/benefits costs
- Transportation and distribution costs
- Utility costs
- Financing costs
- Federal/state/local taxes
| Country |
Index |
Rank |
| Canada |
91.0
|
1
|
| Australia |
91.5
|
2
|
| United Kingdom |
97.6
|
3
|
| Italy |
98.7
|
4
|
| France |
99.1
|
5
|
| Luxemburg |
99.1
|
5
|
| United States |
100.0
|
7
|
| Iceland |
103.3
|
8
|
| Netherlands |
104.0
|
9
|
| Germany |
113.9
|
10
|
| Japan |
123.8
|
11
|
Source: KPMG: Competitive Alternatives, The CEOs Guide to International Business Costs, 2004.
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Ontario’s Competitive Income Tax Rates
Ontario’s tax rates are highly competitive: corporate tax rate is 4% lower than the U.S. average.
Source: Ernst & Young LLP in "Taxation in Ontario", Ontario Investment Service, 2004.
Source: KPMG Tax Facts 2003-2004, Ontario Investment Service, 2004.
Notes: Combined federal, provincial (or state), and local income tax rates for large manufacturing and processing firms.
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Ontario’s Competitive Payroll Tax Rates
| Ontario |
4.95 |
1.95 |
2.77 |
0.00 |
9.67 |
| Japan |
6.79 |
4.30 |
0.95 |
0.11 |
12.15 |
| United Kingdom |
12.8 |
* |
* |
0.00 |
12.80 |
| United States |
6.20 |
1.45 |
6.20 |
0.00 |
13.85 |
| Germany |
9.55 |
7.00 |
3.25 |
0.00 |
19.80 |
| Italy |
23.81 |
* |
Up to 4.41 |
2.48 |
30.70 |
| France |
9.80 |
12.80 |
3.60 |
5.40 |
31.60 |
* A comparable percentage value is not available
Source: Ernst & Young LLP, Canada Revenue Agency.
Note: it should be noted that in some of these cases the social security contributions may be “capped”, e.g., in Canada CPP and EI contributions apply only on income up to $40,500 and $39, 000 respectively in 2004, and in the U.S. social security applies on income up to US$87,900, while unemployment is paid on US$7,000. The total figures does not capture the impact that these capping provisions might have on the effective rate.
Employer payroll tax rates in Ontario are the lowest among the G7 countries.
Employer Paid Benefits
Benefits account for roughly 28.97 % of the average wage package.
| Canada Pension Plan |
4.95 |
|
| Employment Insurance |
2.77 |
|
| Workers Compensation/General liability |
1.50 |
|
| Vacation |
4.00 |
|
| Statutory Holidays (9 holidays) |
3.60 |
|
| Health Tax |
1.95 |
|
| Sub-Total |
|
18.77 |
| Retirement and Pension Plan Payments |
5.40 |
|
| Life Insurance and Death Benefits |
0.50 |
|
| Hospital, Surgical, Medical and Major Health |
1.40 |
|
| Short-Term Disability, Sickness or Accident and Long-Term Disability or Wage |
1.20 |
|
| DEntal Insurance |
1.20 |
|
| Vision Care, Physical / Mental Fitness |
0.50 |
|
| Sub-Total |
|
10.20 |
| Total |
|
28.97 |
Source: PricewaterhouseCoopers, 2003, Ian Martin Limited 2004.
Note: workers compensation rates vary by occupation
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R&D Tax Credits Supporting Innovation
The GTA benefits from Canada’s substantial R&D investment – the most generous among G7 countries. (Source: KPMG Competitive Alternatives G7-2004 Edition).
For instance, in Canada, refundable R&D tax credits can result in “negative” income tax (net government subsidies) for R&D operations.
For more information on R&D funds and tax credits, go to Government support programs.
Ontario Tax Credits (Based on 2004 tax rate)
| Gross Expenditure |
$100.00 |
$100.00 |
| Federal investment tax credit |
(20.00) |
(16.00) |
| Ontario - 20% OBRI tax credit (Note 2) |
|
(20.00) |
| Tax deduction (Note 3) 36.12% X $80 36.12% x $64 |
(28.90) |
(23.12) |
| Ontario Exemption of federal investment tax credit $20 x 14% $16 x 14% |
(2.80) |
(2.24) |
| After-tax cost of $100 expenditure |
$48.30 |
$38.64 |
Source: Mintz & Partners LLP.
Note 1: Eligible Ontario research institutes include universities, colleges of applied arts and technology, research hospitals and other entities in Ontario.
Note 2: OBRITC-the 20% refundable Ontario Business Research Institute Tax Credit.
Note 3: Tax rates for non-manufacturers: Federal 22.12% + Ontario 14% = Total 36.12%.
Compared to the United States, a much broader range of costs qualify for R&D tax credits:
| Wages and Salaries |
√ |
√ |
| Capital Equipment |
√ |
|
| Materials |
√ |
√ |
| Overhead |
√ |
|
| Consulting Fees |
√ |
65% to 75% |
Source: Ontario Investment Service / Ontario Ministry of Economic Development and Trade.
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Toronto Region’s Low Costs
Overall business costs for manufacturing, R&D, and software operations are lower in Toronto than in comparable U.S. jurisdictions.
Source: KPMG, Competitive Alternatives, 2004.
Notes: CDN $0.80 = US $1.00
Average of seven operations: metal components, plastics products, food processing, electronics assembly, precision components, pharmaceuticals, and specialty chemicals.
Source: KPMG, Competitive Alternatives, 2004.
Notes: CDN $0.80 = US $1.00. Average of two operations: advanced software and content development.
Source: KPMG, Competitive Alternatives, 2004.
Notes: CDN $0.80 = US $1.00. Average of two operations: biomedical R&D and electronic systems testing.
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