Could US soon be Canada's tax haven?

Tax expert says government inaction risks exodus of capital and talent

Could US soon be Canada's tax haven?

Government inertia risks the US becoming Canada’s tax haven for investors and business owners, according to an industry insider.

With the Liberal government yet to announce any responsive measures to US president Donald Trump’s aggressive corporate tax cuts and the furore over the changes to the tax rules on passive investment income still fresh in people’s minds, Don Carson, regional tax leader at MNP, said people should be concerned that Canada is not only losing its money but also its top talent.

He said: “If you are a very wealthy individual and if you are evaluating whether you are getting value for your service, Canada has to be concerned because if the US is making it that much easier for you, or not penalising you to that extent, you’ve got to be concerned if you are a federal or provincial government.”

Carson said the fact capital is so fluid means businesses are facing a clear choice about where to base their operations. Feed NAFTA uncertainty into the equation, he said, and Canadian businesses are at an impasse, especially if they have plans to grow.

He said: “I think there’s a lot of concern. If you’re an autoparts manufacturer that’s otherwise operating in Markham where are you going to put your expansion? Are you going to put it in Indiana? Are you going to go to Alabama, South Carolina or are you going to put that in Markham?”

He added: “There’s a lot of uncertainty as far as the ability for businesses to operate effectively in Canada and, in the past, that wasn’t an issue because we could always rely on the NAFTA agreement, or in the past it was the Free Trade Agreement or before that the Auto Pact.

“But now we’ve got so much uncertainty there and if the US government is going to give an opportunity to deduct the cost of your expansion, from a Canadian perspective you’ve got a much better cheaper opportunity to relocate.”

Carson said that businesses moving south will not only benefit from business-friendly labour laws but also gain access to the US market place, which is significantly bigger.

He said: “Unless you are a Canadian company that’s looking to export maybe into Europe or to parts of Asia that don’t have free trade agreements with the US, I think that the baulk of your view is going to be on the north-south trade and trying to get into that US market place before it gets shut off.”

The GTA tax man also turned his attention to personal income tax, which he believes only adds to the hindrance of doing business this side of the border. He cited Ontario’s top rate of more than 53%, which kicks in at a lower level than the US top rate of 37%.

He said: “The government must understand it’s one thing to churn out a bunch of skilled individuals but trying to retain them or recoup the investment that has been made in the public education system is going to be hard when you have the opportunity to earn a lot more money and pay a lot less tax.

“If you’re a business owner, are you going to a jurisdiction that actually has a welcome mat out in front rather then one trying to put up barriers?