Starting a business in Canada? Then — unfortunately — you’ll need to learn more about Canadian taxes.

A Canadian think tank, the C.D. Howe Institute, recently released a report on Canada’s “tax competitiveness” — assessing how corporate taxes in Canada compare to those in other countries and also how tax rates vary among the Canadian provinces.

Among the findings:

The good news is that Canada’s METR (marginal effective tax rate) has fallen to 28.0 percent in 2009 and is set to fall further….to 18.9 percent by 2013. If no offsetting tax changes occur abroad by 2013, these tax changes will place Canada’s rate for capital investment close to the average level of marginal effective tax rates among 80 countries worldwide.

However, the study also “…reveals an ‘eye-popping’ divergence in approach to tax policy among (provincial) governments:”

A leader on the path to prosperity…is New Brunswick, which is pursuing broad structural reforms to its personal and business tax structures to improve simplicity and efficiency. As well, Ontario and British Columbia will adopt a more efficient and fair sales tax structure by harmonizing their individual sales tax regimes with the federal GST…..

On the other end of the spectrum, several provinces have failed to improve their tax structures. Prince Edward Island retains the most outdated structure, with high tax rates on corporate income and retail sales.

So where do businesses in Canada pay the highest taxes?

In 2009, the Atlantic Provinces, except for Prince Edward Island, taxed capital investment the least, followed by Quebec and Alberta….

The highest-taxed province in 2009 is still Ontario, but this is rapidly changing. Prince Edward Island will become the highest-taxed province in 2013 at 29.2 percent, after Ontario and British Columbia implement their sales tax harmonization and Ontario reduces its corporate income tax rate to 10 percent. Manitoba will be second-highest taxed at 27.0 percent, followed by Saskatchewan at 24.9 percent.

You can read the full report here.

Photo ©Carolyn B. Heller