Canada’s Thriving Economy Meets New-Age Challenges
The aggressive use of incentive tools has provided meaningful opportunities for Canadian-based businesses to offset costs associated with growth.
Leslie Wagner, Director of Project Management and Development, Ginovus (Location Canada 2013)

Canada is one of the world’s weathiest nations, with a population of approximately 34.4 million people and the 11th largest economy in the world based on gross domestic product. Often referred to as the land of a thousand stereotypes, the nation may be entitled to a bit of boasting based upon the overall health and stability of the economy, strength of financial systems, and success in economic development efforts.

Comprised of 10 provinces and 3 territories, Canada is a major exporter of oil, minerals, automobiles, manufactured goods, and forest products. The top federal income tax rate is 29 percent and the top corporate tax rate is 15 percent. Other significant taxes include the value added tax (VAT) and a property tax. The overall tax burden amounts to approximately 31 percent of total corporate domestic income.

Canada’s highly competitive regulatory framework promotes business formation and operation. With no minimum capital standards, starting a company in Canada requires only one procedure. Flexible labor regulations enhance employment and productivity growth. The government of Canada prioritizes world-class infrastructure as a conduit for more prosperous communities, stronger economies, and a cleaner environment.

The federal government works hand in hand with the provinces, territories, municipalities, and First Nations to support programs on a nationwide scale. Provinces typically administer the federal programs on behalf of their individual regions. A prominent paradigm of this is the Building Canada Fund, a fund allocated to individual provinces based on population whose purpose is to invest in public infrastructure owned by provincial, territorial, and municipal organizations. The collaborative effort of the federal government and the sub-federal entities it supports is proving to be successful in building a strong economic environment for growth and competitiveness throughout Canada.

While the overall health and stability of the Canadian economy is thriving, there have been some unique challenges at the provincial level, most of which have been responded to with a strategic approach to improvement and aggressive use of financial incentives to help attract new business and help existing companies grow. A closer look follows.


Provincial Corporate Income Tax Rates (2/2012)



Alberta
The thriving economy in Alberta holds its foundation in the natural advantages of the province. Oil sands and oil and gas make energy a key economic driver for the area. In addition to its natural resource assets, Alberta boasts one of the lowest overall tax rates in Canada and is the only province with no provincial retail sales tax. On top of this favorable business environment, Alberta does not impose taxes on capital or payroll at the provincial level, as is common in other provinces and the United States.

One challenge facing the province is Alberta’s ability to maintain a strong supply of skilled labor, especially for employers who have a large number of workers reaching retirement age. Accordingly, measures to increase the availability of skilled workers are in process, including immigration policy initiatives, increased participation for underemployed segments of society, increased productivity and innovation, and efforts to raise the awareness about job opportunities to those outside of the region. The Southeast Alberta Workforce Development Strategy includes a blueprint to inform, attract, retain, and develop the work force in the area. British Columbia
The provincial corporate tax rate in British Columbia is divided into a general corporate tax rate and a small business corporate tax rate. The general corporate tax rate is 10 percent, making the overall tax rate in British Columbia 25 percent. The small business corporate tax rate applies to businesses with less than $500,000 in annual income and is a reduced rate of 2.5 percent.

British Columbia helps support its regional economic development efforts with a Small Business Tax Credit Fund of $33 million. These are tax credit awards to eligible new businesses that have been operating for less than two years. The incentive value can be up to 30 percent of the company’s annual income, with a maximum value of $60,000. Eligible businesses include those within the industries of community diversification, interactive digital media development, research and development of proprietary technology, destination tourism, clean technology, and prescribed manufacturing and processing.

Manitoba
Corporate tax rates around 27 percent continue to place this province in a competitive environment. Manitoba has one the most diverse economies in Canada, with manufacturing making up the largest sector (12 percent of GDP), and finance, farming, and one of the country’s largest media companies rounding out other major industries. Manitoba is continuing to build opportunities through resources and technology, competitive corporate business taxes, and a solid work force.

Manitoba’s Action Strategy for Economic Growth is focused on seven key areas that have set the framework for the province’s continued success: education and skills, research and innovation, supporting investment, affordable government, growing immigration, Manitoba’s green energy advantage, and building communities.

New Brunswick
Rebuilding New Brunswick is the economic development action plan for New Brunswick 2012–2016. Outlined in the plan are initiatives to address the challenges facing the economy in New Brunswick, including an aging population, a relatively weak labor market, and limited trade initiatives.

The Northern New Brunswick Economic Development and Innovation Fund is specifically for the northern counties of New Brunswick and available for qualifying projects in existing companies for growth and development of capital resources; adoption of information and communication technologies; research, development, and innovation; improving strategic infrastructure; and advanced work force development. The fund will provide incremental assistance totaling $200 million over a four-year period from April 2011 through March 2015.

Newfoundland & Labrador
Newfoundland and Labrador struggled when the fishing industry collapsed in the early 1990s, but the province has made an impressive recovery with record-breaking employment levels in recent years. Employers are ready to hire a strong and able work force to continue momentum.

Economic development efforts have been strong, as can be seen in the development of the Economic Diversification and Growth Enterprises Program (EDGE), which provides incentives to encourage significant new business investment in the province to help diversify the economy and stimulate new private-sector job creation. Incentive opportunities include:

  • A 100 percent rebate on provincial corporate income tax and the provincial health and postsecondary education tax for a period up to 15 years depending upon the business location

  • A 50 percent rebate on federal corporate income tax

  • A further five-year period of partial rebates on both provincial and federal taxes, declining by 20 percent in each year of the phase-out period

  • A 100 percent rebate on municipal property and/or municipal business taxes followed by a five-year phase-out of such rebates within municipalities that participate in the EDGE program


Next: Nova Scotia, Ontario, Prince Edward Island, Quebec, Saskatchewan

Nova Scotia
Nova Scotia is battling a work force decline expected to reduce its available work force by 20,000 by 2014 (mostly due to retirees). Over the last 20 years, this province has experienced less economic growth than any other province in Canada. Nova Scotia has many economic development incentives available, and a major new program was recently announced. The Nova Scotia Jobs Here Program, under the auspices of the Productivity Investment Program, provides incentives for businesses to be more productive, innovative, and competitive. The Jobs Here Program is aimed at three main objectives for growing the necessary work force to support economic growth in the province:

  1. 1. Learning the right skills

  2. 2. Growing the economy through innovation

  3. 3. Helping businesses compete on a more global level

Business incentives available under the Productivity Investment Program include:

  • Payroll Rebate — Payroll rebates are available to companies that are locating or expanding in the province. The payroll rebate is a return of a company’s eligible gross payroll (withholdings). The amount is dependent upon on the economic benefit generated to the province and is generally paid out annually over a term of five years or less.

  • Workplace Innovation and Productivity Skills Incentive — This job training incentive provides funding to companies to encourage investment in skills development and certification, as well as to help companies adapt to new technologies and processes, improve productivity, and strengthen global competitiveness.

  • Research and Development Tax Credit — This program provides companies investing in R&D up to a 35 percent credit on eligible investment.

Ontario
Ontario promotes its competitive work force as a differentiator and engine for business growth. Sixty-four percent of adults in the Ontario province have completed postsecondary education. Ontario’s combined federal-provincial corporate income tax rate of 26.5 percent is lower than the average of G-8 and G-20 countries and lower than the average federal-state corporate income tax rate in the U.S.

Ontario offers incentive programs to support its economic development efforts to both existing businesses and communities. The Eastern Ontario Development Fund (EODF) is a discretionary fund designed to support regional economic development efforts by creating jobs, attracting investment, and promoting innovation. The funding stream is available for established businesses that invest in excess of $10 million and create 50 or more jobs.

The Southwestern Ontario Development Fund (SWODF) is a discretionary fund that supports regional economic development by creating jobs, attracting private-sector investment, and promoting innovation, collaboration, and cluster development in southwestern Ontario.

The Strategic Jobs Investment Fund (SJIF) is a discretionary grant and loan program designed to support leading-edge investments and jobs in Ontario focused on clean/green technologies, financial services, informational and communication technology, and life sciences. In order to qualify for funding, a company must meet minimum project threshold requirements.

Prince Edward Island
With significant focus on innovation, Prince Edward Island’s economic development efforts are highly innovative. The Innovation PEI initiative is focused on advancing economic development by investing in people, innovation, and infrastructure. Key sectors that have displayed high potential for economic growth within the province are being targeted, including aerospace, bioscience, information technology, financial services, and renewable energy. Incentive tools are available to businesses to help them attract and expand industry including:

  • Innovation and Development Labor Rebate — A refundable wage rebate of 37.5 percent is available to projects in support of the development and/or commercialization of new products, processes, and services.

  • Specialized Labor Tax Rebate — This is a lower labor tax rate used to hire and recruit key leadership personnel in the management and technical specialist areas for companies establishing operations where knowledge and skill is not yet available in the local labor market.

Tax holidays for targeted industries are available, as are programs based on capital investment and performance-based job creation.

Quebec

Quebec’s ministries of Finance, Tourism, and Economic Development have recently merged to form the new Ministry of Finance and the Economy (MFEQ). This province offers some of the lowest tax rates in Canada, with an overall corporate tax rate of approximately 27 percent. There are several economic development programs in place to assist growth in the region. The Quebec Economic Development Program (QEDP) supports the economic development efforts of the region, including entrepreneurship, business performance, and investment.

The objectives of the Community Futures Program (CFP) include stability, economic growth, job creation, developing and maintaining sustainable communities, and competitive local economies in rural areas.

Infrastructure programs support improvements, rehabilitation, and expansion of existing community infrastructure. Incentive programs come in the form of grants, non-repayable and repayable contributions, depending on the programs. Nonprofit, public, or para-public organizations and First Nations governments are eligible for grant programs.

Saskatchewan

A number of economic development incentives help support growth. New capital investment in Saskatchewan hit an all-time record of $20.2 billion in 2012, according to a report by Statistics Canada. The incentives below are aimed at offsetting business costs of a growing corporation:

  • Manufacturing and Processing Investment Tax Credit — This nonrefundable income tax credit is designed to encourage plant and equipment investment. This credit is available to all manufacturing and processing corporations with some allocation of taxable income to Saskatchewan.

  • Research and Development Tax Credit — This 15 percent credit is fully refundable for Canadian-controlled private corporations; up to $3 million is available for qualifying research and development expenses.

  • Municipal Property Tax Abatement — Municipalities are able to offer five-year property tax abatements. The amount of the incentive, qualifications, and management are defined per municipality.

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