Canada’s Tax Competitiveness Ranking Falls by Two Spots in Global Report

October 24, 2024 TruthUSA

Canada has slipped two spots on an international tax competitiveness index, partly due to Ottawa’s increase in the capital gains inclusion rate this year, as reported by the ranking report.

Canada dropped to 17th place from 15th in 2023 among the 38 Organisation for Economic Co-operation and Development (OECD) countries analyzed, according to the International Tax Foundation report. The foundation examines changes in each country’s tax systems and grades them based on competitiveness and neutrality.

The report attributed Canada’s lower ranking to the digital services tax and the increase in the capital gains tax introduced this year. Additionally, Canada’s phasing out of full expensing for machinery and the accelerated investment incentive for buildings were factors in the rating, as per the foundation.

“Canada taxes capital gains at a rate of 35.7 percent and dividends at 39.3 percent, significantly above the OECD averages of 19.7 percent and 24 percent, respectively,” the report highlighted, placing Canada 35th among the 38 OECD countries for capital gains tax competitiveness.

The changes to Canada’s capital gains tax, effective June 25, require Canadian companies to pay taxes on 66.7 percent of their realized capital gains, up from the previous 50 percent. Individuals now face taxation on 50 percent of the first $250,000 of capital gains earned in the year and 66.7 percent of any gain beyond that threshold under the new regime.

Critics argue that the hike unfairly impacts doctors, farmers, and small business owners, but Finance Minister Chrystia Freeland defends the changes as promoting “fairness” in Canada’s tax system, affecting mostly the wealthiest 0.13 percent of Canadians.

Freeland stated in June that the tax changes would eliminate the need for additional debt as they are expected to generate $19.4 billion over the next five years.

Despite Canada’s overall ranking at 17th in the new report, it ranked considerably lower in specific categories, placing 26th for corporate taxes and 31st for individual taxes.

Canada also secured eighth place in consumption tax competitiveness but landed at 25th for property tax competitiveness.

The report indicates that Canadians bear a hefty tax burden compared to other OECD nations, as noted by MEI economist Emmanuelle B. Faubert in a release on the ranking.

“Ottawa appears set on discouraging entrepreneurship, surpassing other countries in deterring investments,” added Faubert. “Amidst a productivity crisis, Canada should concentrate on enhancing tax competitiveness to attract investments, but instead, we’re heading in the wrong direction.”

The Canadian Taxpayers Federation (CTF) responded to Canada’s decline in tax competitiveness ranking, calling the report a “five-alarm siren to halt tax hikes.”

The Fraser Institute also issued a statement on Canada’s ranking, urging the government to “enact broad-based tax reform” in response.

The top five countries on the tax competitiveness index were Estonia, Latvia, New Zealand, Switzerland, and Lithuania. Australia ranked 13th, the United States trailed Canada at 18th, and the UK held the 30th position.

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