Provincial Income Tax Comparison for Small Businesses
Part 2: Comparing the Income Tax Bill in Each Province and Territory
As you can see in the two tables on the previous page comparing the income tax our "average" small business man would pay on a taxable income of $29,068.70 in each province or territory, the average tax rate varies from 22 percent through a whopping 26 percent.
As a small business owner, Ben will pay the least income tax if he operates his business in Ontario, where he would pay only $947.06 in provincial taxes. His second lowest tax bill would be in the Northwest Territories and Nunavut, where the provincial
taxes of $1,517.42 are offset by a territorial tax credit of $320.96, for a total provincial tax bill of $1,196.46. In this scenario, Ben would pay the most income tax in Newfoundland, followed closely by Saskatchewan, both of which will levy provincial taxes of over $2000.
As you can see in the two tables on the previous page comparing the income tax our "average" small business man would pay on a taxable income of $29,068.70 in each province or territory, the average tax rate varies from 22 percent through a whopping 26 percent.
As a small business owner, Ben will pay the least income tax if he operates his business in Ontario, where he would pay only $947.06 in provincial taxes. His second lowest tax bill would be in the Northwest Territories and Nunavut, where the provincial
taxes of $1,517.42 are offset by a territorial tax credit of $320.96, for a total provincial tax bill of $1,196.46. In this scenario, Ben would pay the most income tax in Newfoundland, followed closely by Saskatchewan, both of which will levy provincial taxes of over $2000.
No matter which province or territory Ben's business is in, however, paying the combination of CPP contributions, federal taxes, and provincial taxes will cost him about a quarter of his taxable income.
The income tax scenario only gets worse if Ben makes more money. For instance, if he has a gross income of $60,000, with the same business expense deductions of $10,260, for a net taxable income of $49,168.70, his average tax rate will range from 28 to 33 percent. The following table compares the income tax Ben will pay in the two most expensive and the two least expensive provinces or territories,
with B.C. thrown in to represent the mid range.
Income Tax on $49,168.70 By Province
BC
Sask
Ontario
Newfoundland
NW
Territories/ Nunavut**
Federal
$8,185.74
$8,185.74
$8,185.74
$8,185.74
$8,185.74
CPP Contribution
$2,659.80
$2,659.80
$2,659.80
$2,659.80
$2,659.80
Provincial
$4,027.99
$5,081.49
$3,114.98
$5,364.67
$3,683.58
Balance
Owing
$14,873.53
$15,927.03
$13,960.52
$16,210.21
$14,011.10*
Average
Tax Rate
30%
32%
28%
33%
30%
* The Northwest Territories and Nunavut give a
territorial tax credit of $518.02 in this case.
Once again, Ontario's tax bill is the lowest, but even there Ben is going to have to shell out almost $14,000. No wonder Ben dreads tax season! The disparity between the provinces becomes more glaring as the net income rises; as you see in the table above, the difference in Ben's tax bill between Ontario and Newfoundland is more than
$2000, a substantial difference when it's coming out of your pocket.
The key to paying less taxes, of course, is to have less taxable income. In our last income tax scenario, Ben once again has a gross income of $40,000, but this time his deductible business expenses have doubled to $20,010, giving him a taxable income of $19,318.70 for 2000. How do the provinces and territories compare in this situation?
Income Tax on $19,318.70 By Province
BC
Sask
Ontario
Newfoundland
NW
Territories/ Nunavut**
Federal
$1,843.83
$1,843.83
$1,843.83
$1,843.83
$1,843.83
CPP Contribution
$1,241.66
$1,241.66
$1,241.66
$1,241.66
$1,241.66
Provincial
$885.87
$1,174.82
$690.89
$1,196.76
$829.72
Balance
Owing
$3,971.36
$4,260.31
$3,776.38
$4,285.25
$3,692.02*
Average
Tax Rate
20%
22%
19%
22%
20%
* The Northwest Territories and Nunavut give a
territorial tax credit of $223.19 in this case.
| 