Calgary's tax burden on business grows but remains one of the lowest in Canada

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Calgary businesses are facing a growing tax burden but one that remains among the lowest in the country, according to an independent analysis from the C.D. Howe Institute.

The non-profit research group, which specializes in economic policy, released the 2017 edition of its annual Business Tax Burdens in Canada's Major Cities report card on Wednesday.

Out of 10 cities that were examined, only Saskatoon had a lower overall tax burden than Calgary.

"Saskatoon and Calgary still lead the way, but Calgary increasingly lags behind Saskatoon as Alberta's business tax environment deteriorates," the report reads.

Adam Found, who co-wrote the report, said Alberta's largest city remains one of the most attractive cities in Canada for business investment but that is increasingly threatened by growing levels of taxation at both the provincial and municipal levels.

"When we started this whole thing back in 2013, Calgary was actually No. 1, but since then it has slipped to No. 2," he said.

"Moreover, you've got Saskatoon that is widening its gap over Calgary … and then you have Vancouver that is catching up to Calgary very quickly. So it's quite possible that by the time we do this analysis again next year, Calgary is in third place."

How the comparison works

Taxation methods and rates vary widely from city to city, and the annual report aims to cut through the differing systems to provide more of an apples-to-apples comparison.

The report combines the various types of taxation and calculates a marginal effective tax rate (METR), which it defines as "the increase in the rate of return an investor would need to cover the cost of taxes."

So, if an acceptable rate of return is four per cent, but an investor needs to get six per cent to both pay the relevant taxes and deliver that return to shareholders, the METR is calculated at 50 per cent. (Six is 50 per cent more than four.)

Found said the tax burden in a given city is "a very strong factor" when it comes to business decision making, but there are other considerations, too.

"When a business is trying to decide where to invest — or if to invest — these taxes are not the only things that they consider," he said.

"They're going to look at municipal services. They're going to look at transportation networks. They're going to look at other businesses that are located in that city. All those types of things are going to factor into that decision."

And while Calgary is among the most attractive jurisdictions, tax-wise, Found noted its trajectory is running in the opposite direction from most other cities.

"Generally speaking, at the national level, we're seeing our average METR going down, while in Calgary it's actually been going up," he said.

Found said that's due to a combination factors, including increased property taxes at the municipal level and the province's 2015 increase in the corporate tax rate.