NBT has challenged my number crunching credibility and statements around this tax issue. Therefore, I have thrown down the gauntlet and taken up his challenge. I challenge you to a duel, sir :-). I wasted a whole 1.5 hours on this.
Okay, the following table shows how you calculate provincial corporate taxable income. It is based on a combination of wages and revenues in each province. The table is taken from this CRA form.
Our model is pretty typical. It shows a company with $20 million in sales and $2 million in annual profits. It’s revenue is distributed nationally by population and its costs are primarily in Ontario 80% of all wages. You will see that under this scenario, taxable income in New Brunswick is $30,000 and in Ontario $1.2 million.
Then, assume Scenario B where $4 million of the wages paid in Ontario are moved to New Brunswick. Let’s assume the manufacturing activity was moved to NB to take advantage of the zero corporate income tax rate put on by the government. You can see the taxable income calculation.
The following table shows the corporate income tax rates (2008) for each of the provinces for a facility this size and what they would pay in Scenario A.
This table shows the new corporate income taxes paid after moving the $4 million in payroll to New Brunswick:
In other words, the company reduced its corporate income taxes payable in Ontario by $48,000. You add to that the $4,000 they would have paid in NB under Scenario A and they have reduced their overall taxes paid by 2.6%. To put it another way, the company’s overall costs (including taxes) would be reduced by less than one percent by moving their entire manufacturing operation to New Brunswick.
The same thing holds if we scale it up to a $200 million or a $2 billion company. The ratios hold. They would be saving a few points off their total tax bill and less than a percentage point off their entire cost structure by New Brunswick zeroing out its corporate income tax rate.
Now, I am not saying that lowering corporate income tax means nothing. It means something but it is a relatively limited cost item in the overall picture.
Companies will invest in New Brunswick if its overall cost structure is competitive; if its R&D environment is attractive, if there is a good labour pool for now and the future, if transportation infrastructure and cost is competitive, etc. etc. etc.