Pending Ontario income, sales, and capital tax issues

Tax Executive, The, Jan, 2000

On January 27, 2000, members of the Toronto Chapter met with representatives of the Ontario Ministry of Financy to discuss pending Ontario income, sales, and capital tax issues. The agenda, which is set forth below, was prepared under the aegis of the Toronto Chapter Ontario Tax Committee, whose chair is Alan Wheable of Toronto Dominion Bank. The agenda was approved in accordance with the Institute's procedures on technical and legislative activities.

In connection with the upcoming liaison meeting between members of the Toronto Chapter of Tax Executives Institute and representatives of the Government of Ontario, I am pleased to submit the following agenda of pending income, sales, and capital tax issues. In addition, we confirm that the tentative meeting time is 9:00 A.M., January 27, 2000, in the president's lounge, 32nd Floor, Canada Trust Tower, 161 Bay Street, Toronto, Ontario.

Background

Tax Executives Institute is the preeminent association of business tax executives. The Institute's 5,000 professionals manage the tax affairs of the leading 2,800 companies in Canada, the United States, and Europe and must contend daily with the planning and compliance aspects of Canada's business tax laws. Canadians make up 10 percent of TEI's membership, with our Canadian members belonging to chapters in Calgary, Montreal, Toronto, and Vancouver, which together make up one of our eight geographic regions. Our non-Canadian members (including those in Europe) work for companies with substantial activities in Canada. In sum, TEI's membership includes representatives from most major industries including manufacturing, distributing, wholesaling, and retailing; real estate; transportation; financial services; telecommunications; and natural resources (including timber and integrated oil companies).

TEI is concerned with issues of tax policy and administration and is dedicated to working with government agencies to reduce the costs and burdens of tax compliance and administration to our common benefit. We are convinced that the administration of the tax laws in accordance with the highest standards of professional competence and integrity, as well as an atmosphere of mutual trust and confidence between business and government, will promote the efficient and equitable operation of the tax system.

We currently have liaison meetings with senior officials at various levels including Ottawa, Washington, Alberta, and Quebec. Given the importance of Ontario to the administration of Canadian taxes, we are very much looking forward to our first such meeting. We have set out below an agenda covering a number of issues that we feel would be fruitful for discussion. We believe this agenda fairly represents the interest and concerns of the Institute's members, especially those who live and work in Ontario. Should the government or TEI believe it necessary or warranted by the discussion, we shall be pleased to prepare and submit written comments expanding or clarifying the Institute's position concerning these or other matters identified during the meeting.

1. Large Business Tax Strategy

Numerous studies, including those conducted by the Alliance for Manufacturers and Exporters and the Business Council on National Issues, have concluded that taxes are a significant cost of doing business and are a substantial variable affecting the decision on where to make incremental business investments. A report by the Conference Board of Canada on taxes and investment makes the same point: "Taxes are perception shapers -- visible and measurable. Other factors determining the attractiveness of a country are significantly less so." Companies in Ontario are part of a global economy but tax rates are uncompetitive compared with other provinces, especially Alberta. Example 1 provides a snapshot summary.

Example 1

                                         Ontario   Alberta   Quebec
Corporate Income Tax Rates (%)
  (a) Non-manufacturing                   15.5      15.5      8.9
  (b) Manufacturing                       13.5      14.5      8.9
PST rate (%)(Quebec refundable
on many business inputs)                   8.0       0.0      7.5
Capital tax rate (non-financial)(%)        0.3       0.0     0.64
Payroll tax rate (%)                      1.95       0.0     4.26

Alberta is clearly attempting to be competitive in every tax area -- note the initiatives in its last budget. In addition, other provinces have targeted business tax reductions, including, for example, Quebec's tax rate on general active business and scientific research and experimental development (SR & ED) incentives. In contrast, Ontario's tax incentives tend to have low dollar value amounts and higher administrative costs associated with claiming the benefits (e.g., the co-op student tax credit).

The picture of the overall tax burden does not brighten when comparing Ontario to our major trading partners either. Indeed, Ontario companies bear an increasing array of surtaxes and capital taxes that other countries have been eliminating or reducing. The United States, for instance, has no national capital tax at all and only a handful of states levy one.