Canadian small businesses pay about 20 per cent more in taxes than U.S. companies: CFIB

The Canadian Federation of Independent Businesses (CFIB) states small businesses (of 24 employees) pay 24 per cent more in income, payroll and property taxes than their American counterparts. A woman sits at a table with a calculator in this undated stock image. (Mikhail Nilov/Pexels.com)

Canadian small businesses pay more taxes than a corporation of similar size in the United States, preventing owners from investing in the economy, according to a new report from a national advocacy group.

The report from the Canadian Federation of Independent Businesses assesses tax competitiveness for microbusinesses and small businesses across Canadian provinces compared to U.S. states. Canadian small businesses on average pay $374,000 in Canada compared to U.S. companies that pay $304,000.

The CFIB says small businesses (24 employees or less) pay 24 per cent more in income, payroll and property taxes than their American counterparts.

“Small businesses are the cornerstone of our local economies, and we need to support them,” Bradlee Whidden, senior policy analyst for CFIB told BNNBloomberg.ca in a Thursday interview.

Small businesses in Quebec pay $425,000 compared to companies in South Dakota that pay $246,000. Small businesses in Saskatchewan for example, which is the lowest taxed province, pay $27,000 more than the U.S. average.

“The Canadian economy is struggling right now,” said Whidden. “The Bank of Canada says that we are in the midst of a productivity crisis, which means that less goods and services are being produced that Canadian residents want and need like housing units and dentist appointments. I think a lot of that shortfall can be directed at taxes. The United States is not having that problem like we are, and we found that they’re paying far less, or their small businesses are paying far less in taxes.”

The Canada Revenue Agency says Canadian private corporations, claiming the small business deduction, pay a net tax rate of nine per cent (4.5 per cent for manufacturers of qualifying zero-emission technology).

“We believe small businesses are paying too much in taxes here in Canada,” said Whidden. “Currently, the federal small business income tax rate is nine per cent. We think that’s far too high and needs to be lowered.”

Provincial and territorial tax rates differ as Manitoba eliminated the small business income tax. Ontario businesses meanwhile pay 3.2 per cent, followed by Nunavut at three per cent and Newfoundland and Labrador at 2.5 per cent. Whidden said he wants provinces to follow the lead of other provinces.

The group calls on all levels of government to lower corporate tax rates, provide more tax relief and create a more competitive tax environment for businesses as they struggle with economic uncertainty, and high operation costs amid U.S. President Donald Trump’s tariff trade war.

Whidden said Trump’s Big Beautiful Bill has made the tax gap between two countries even wider as legislation provides full expensing for domestic costs, capital investments and research and development and tax cuts enabling accelerated business investment. It follows the Tax Cuts and Jobs Act of 2018.

He said he is concerned businesses will head down south and that the federal government has little geared towards small businesses to expense and accelerate spending.

Methodology

This analysis presents figures in each country’s local currency. Variables were selected for each business type based on what was reasonable for their size. For small businesses and microbusinesses, these include pretax net income ($1 million and $150,000), the number of employees (four and 25), and business property value ($450,000 and $3 million). Taxes that are treated as business expenses, such as payroll and property taxes, reduce taxable income before the remainder is subject to income taxes. Local taxes such as municipal property taxes assume the business is located in the largest municipality in each province or state. Five of the most populous U.S. states were selected for the comparisons, with the remaining 15 chosen based on their trade exposure and geographic proximity to Canada.