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The Canadian Advantage: Competitive Business Costs and Low Taxes

Competitive costs and low taxes help to fuel the diverse economy on display in Canada’s 10 provinces and three territories.

Location Canada 2015
Why pick a location in Canada? There are numerous factors that regularly vault the nation toward the top of international rankings of business-friendly environments — from Forbes to Bloomberg and beyond. Right at the top of the list are Canada’s competitive business costs, starting with taxes.

One KPMG report — which added up a range of business expenses from statutory labor costs to sales taxes — lauded Canada’s tax structure as the most business-friendly in the developed world. Tax-related costs in Canada were 46.4 percent lower than in the United States, according to KPMG’s “Focus on Tax,” which also listed Toronto, Vancouver, and Montreal as the most tax-competitive of 51 major international cities.

That fact comes as a surprise to a lot of people, notes Glenn Mair, director at MMK Consulting Inc. in Vancouver. “It’s an advantage that is often not understood or perceived,” he says. “The tendency is to view Canada as being a high-tax jurisdiction, which certainly is not the case.”

Though its tax advantages are not always widely appreciated, Canada definitely has a reputation for being technology-friendly, Mair says. “A real strength we see is the support for R&D activities, with permanent R&D credits both federally and in most provinces.”

KPMG certainly noticed, declaring that Canada is best-in-class when it comes to the tax structure for R&D operations. According to KPMG’s report, in addition to federal R&D tax incentives, “most Canadian provinces also offer provincial R&D tax incentives at rates that vary from 10 to 20 percent, with some of these tax credits being refundable.” Meanwhile, according to KPMG, “Canada ranks first for digital services operations, primarily due to significant provincial incentives that provide financial support to video game producers and other digital media industries.”
Expand Percentage of Individuals Aged 25–64 Having Attained Post- Secondary Education – To Top 10 OECD Countries
Close Percentage of Individuals Aged 25–64 Having Attained Post- Secondary Education –
To Top 10 OECD Countries
Percentage of Individuals Aged 25–64 Having Attained Post- Secondary Education – To Top 10 OECD Countries
Labor-related advantages also attract a lot of attention. Among members of the Organization for Economic Cooperation and Development, Canada has the most highly educated workforce. It’s also a very diverse workforce,  Mair adds. “Multilingual capabilities are a strong asset in the major cities in Canada,” he says.

And the business environment also smiles upon those employers that feel the need to import certain types of expertise if necessary, he adds. “One advantage is the easier ability to bring in talented people from overseas to operate in Canada, compared to the U.S.” Ontario — An Automotive Powerhouse
Growth is in the air in the most populous province, Ontario, home to 13.7 million people. The bullish economic outlook produced by the Ontario Chamber of Commerce cites a variety of positive factors, from growth in the neighboring United States to the decline in the value of Canada’s dollar to falling oil prices (the National Bank of Canada earlier this year referred to the decline in oil prices as a “$5 billion tax cut” for the residents of Ontario and Quebec). The chamber expects economic growth this year to be up by about 40 percent over 2014 and double what it was in 2013, and the outlook is just as rosy for 2016.

The forecast calls for growth across the province, and across a broad swath of industry sectors. Most types of manufacturing, for example, are on the upswing in Ontario, and agriculture and tourism have strong outlooks as well.

Ontario and neighboring Michigan are rivals for the title of the continent’s leading automotive producer. The province’s auto sector includes assembly operations for five major auto producers, plus more than 700 parts suppliers. In fact, about one in seven Ontario jobs is directly or indirectly tied to the auto industry. Ontario plants have turned out about 16 percent of the continent’s vehicles in the past five years, and the auto sector pumped $16 billion into the Ontario economy last year.

Hoping to build on that prominence and further promote Ontario’s auto sector, the province last spring joined forces with the Canadian Automotive Partnership Council and the federal government to create a new subcommittee. The group will offer strategic advice on boosting investment and ensuring the sector’s long-term success. Already, Ontario’s auto plants produce some of the highest-rated cars in North America, and its R&D operations produce advances in everything from composites to connectivity.

It’s not just automotive connectivity that’s advancing in Ontario — the province is home to North America’s second-largest cluster of information technology. Ontario is a tech hub in general, employing nearly half of the nation’s R&D personnel and home to the headquarters of half of Canada’s top 10 corporate R&D spenders.

Ontario is Canada’s leader in life sciences. It has a thriving food and beverage manufacturing sector, an aerospace industry with more than $5 billion in revenues, a significant mining sector, and one of the continent’s leading financial sectors, which provides work for some 350,000 people.

Tax-related costs in Canada were 46.4 percent lower than in the United States, according to KPMG’s “Focus on Tax,” which also listed Toronto, Vancouver, and Montreal as the most tax-competitive of 51 major international cities. Quebec — A Life Sciences & AN Aerospace Leader
The second-most-populous province is Quebec, which 8.2 million people call home, according to Statistics Canada. Like Ontario, it’s a leader in life sciences, with major players including nearly a dozen of the world’s most prominent pharmaceutical companies. Needless to say, it’s a hotbed of research expertise, making it an attractive spot for an R&D location.

The province’s aerospace sector accounts for nearly half of Canada’s aerospace sales, and Montreal is considered one of the world’s top three aerospace centers. Local, provincial, and federal governments aim to keep it that way — recent evidence of that included a spring 2015 announcement of $11 million in funding for aerospace projects at more than a dozen local companies. The funding is expected to generate more than $78 million in investment. Ground transportation also is highly active in Quebec, with more than 600 companies working on advancements in areas ranging from commercial transportation to electric buses.

Food and agribusiness operations are strong in Quebec, accounting for roughly $6 billion in annual exports each year. And the province’s technology sectors are respected, active, and growing — microelectronics expertise is building, information and communications technologies provide work for 176,000 people, and the province has a growing multimedia sector. Those into Wii gaming have Quebec’s workforce to thank for such titles as “Assassin’s Creed” and “Prince of Persia.”

British Columbia — Natural Resources Are Key
Across Western Canada, natural resources are a key to the economy, which means the global collapse in oil prices has not been welcome news. Be that as it may, the Conference Board of Canada reports that British Columbia could still see some of the country’s most robust growth this year, thanks in part to the diversity of its economy. Factors include healthy consumer confidence, U.S. growth, and a solid housing market.

British Columbia has a long history in forestry, mining, and fishing. Its liquefied natural gas sector has been riding a growth wave, and though it has seen its struggles, there are still growth prospects for the export of LNG, including to expanding Asian markets. The prospects for exports to Asia go far beyond LNG, in fact. Stronger ties with Japan, China, Korea, and India have helped British Columbia strengthen its status as a global transportation and trade hub for all kinds of goods and people from across North America.

Home to 4.6 million, British Columbia is a forward-thinking place, particularly in and around Vancouver. Opportunities are growing in such areas as green technology, digital media, and life sciences. It’s one of the world’s top video gaming industry hubs, and more than 1,100 digital media companies are innovating not just in gaming but also in digital film, television, and interactive advertising. Among recent highlights, Sony Pictures Imageworks officially opened its new headquarters in downtown Vancouver this past summer. Also new to the picture is the Microsoft Canada Excellence Centre, a training and development operation.

The many efforts aimed at growing the area’s prominence in green technology include the Greenest City Action Plan, with a goal of making Vancouver the world’s greenest city and boosting its reputation for green enterprise. There were roughly 20,000 “green jobs” in 2013, and the effort is expected to boost that past 30,000 by 2020.

Alberta — Oil-Dependent
This province, home to 4.1 million people, is particularly oil-dependent, and as such has been particularly hard-hit by the fall in oil prices — they’ve dropped by more than 50 percent since mid-2014, according to the provincial government. The Conference Board of Canada suggested Alberta’s economy could shrink in 2015, quite the turnaround from the growth of 4 percent or more that it had been enjoying in recent years. The government’s forecasters do expect some GDP growth for 2015, but just half a percent. Subsequent years should be brighter, at least if oil gradually recovers, as many economists predict.

Though oil is expected to remain a drag on Alberta’s economy for at least a couple of years, all is not lost. U.S. economic growth is expected to boost the province’s non-energy industries, including agriculture, forestry, and manufacturing. For example, plastic and chemical manufacturing has been healthy, with strong levels of investment and increased exports on continued boosts in industrial capacity. And even as the petroleum outlook became increasingly glum last year, Calgary enjoyed such positive headlines as the 200-job opening of a Sears Canada fulfillment center and plans for a Compass Compression fabrication facility.

Manitoba — Economically Diverse
A variety of researchers examining Manitoba have all reached similar conclusions — this province of 1.3 million people benefits from economic diversity. That’s one reason it has fared so well in Conference Board of Canada forecasts, which indicate that Manitoba will exhibit some of Canada’s most robust growth in 2015 and 2016. The organization expects Winnipeg to have the strongest growth of any city in the western half of Canada, other than Vancouver.

That economic diversity shows up in the list of prominent industry sectors, including food processing, agricultural technology, heavy vehicle manufacturing such as buses, aerospace, green technologies, information and communications technologies, mining and petroleum, and financial services. The province has enjoyed healthy investment, according to the Manitoba Bureau of Statistics, even during the most recent economic downturn. That holds true across the private sector, including in manufacturing.

Keeping the winning streak alive is the goal of a $60 million National Research Council facility announced recently in Winnipeg. It’s a “Factory of the Future” facility intended to spark development and testing of new manufacturing technologies and processes.

Saskatchewan — The “Bread Basket”

Home to 1.1 million, Saskatchewan is sometimes referred to as the “Bread Basket of Canada” or even the “Bread Basket of the World,” which offers a strong clue to the importance of agriculture in its economy. In fact, more than 40 percent of Canada’s farmland lies within Saskatchewan, and the province typically grows half of the country’s wheat, among other crops. Livestock farming is prominent as well, and as one would expect, the province relies on a variety of agricultural support industries.

Minerals and other resources also play a role in this province’s economic picture. It’s a world leader in the export of potash and uranium, and oil production is significant as well. Meanwhile, there are significant initiatives that aim to diversify the economy, including Saskatchewan Opportunities Corp.’s support of the technology sector. Its Innovation Place technology parks fuel clusters active in such things as agriculture, life sciences, and mining technology, along with information technology.

Atlantic Provinces — Natural Resource-Based Economies
The four provinces along the Atlantic range in population size from the 942,700 residents of Nova Scotia to 146,300 on Prince Edward Island. Some 753,900 call New Brunswick home, while 527,000 reside at addresses in Newfoundland and Labrador. A common denominator of these provinces is a strong reliance on natural resources, including oil and forest products. Food processing is big, as well, from seafood to Prince Edward Island potatoes. In the latest Conference Board forecast, Newfoundland and Labrador was one of just two provinces expecting an economic decline in 2015.

Among the manifestations of the area’s determination to foster growth and build upon its business-friendly environment are the Department of Business and Office of Regulatory and Service Effectiveness created recently by the Nova Scotia government. The aim is to align public, private, and social enterprise sectors across neighboring regions, and promote a common agenda of economic growth. Meanwhile, there are ongoing efforts to boost existing industries — for example, the New Brunswick and federal governments earlier this year announced new financial support to strengthen the oyster industry.

The Three Territories — Pristine Beauty
Among the largest but least populated parts of Canada are the three territories stretching to the north of the 60th parallel toward the Arctic Circle. About 43,600 reside in the Northwest Territories, and given that its economy is tied strongly to such resources as gold, diamonds, oil, and natural gas, it’s not surprising that it has had Canada’s highest per-person gross domestic product. The resource-focused picture is similar in the Yukon and Nunavut territories, each of which is home to between 36,000 and 37,000 people. And the territories also benefit from tourist dollars, drawn by the pristine beauty across the northern portion of Canada.
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