One common argument I hear from people who support lower taxes is that if we increase taxes on corporations, they will leave.
So, I decided to look at the data to see if it could shed some light on the subject. I found Statistics Canada data for head offices in Canada, organized by province, between 2012 and 2019.
In 2019, there were 2,750 corporations with head offices in Canada. About 85% of them were in the 4 largest provinces, with the largest share being in Ontario.
Canada actually has lost the number of head offices since 2012, when it was at nearly 2,800.
We can see that while the number of head offices in Canada was lower in 2019 than it was in 2012, it actually has been trending upwards for the last 3 years.
That’s important to know as we compare the change in head offices for the 4 largest provinces.
Here, we see that 3 of the 4 provinces lost head offices during this 7 year period. British Columbia had a net gain of just 1. Alberta had a net loss of 17.
Now a look at the same change but as a percentage change:
With both graphs, Alberta seems to be doing worse than the other two. And given that during most of this period, the corporate tax rate sat at 12%, which the NDP had hiked up shortly after taking office, does that mean we lost head offices because of the corporate income tax increase?
Well, let’s check out some more charts first.
This chart shows the percentage change for each province each year.
Québec and BC seem to be performing positively, with BC seeing head office growth during the last 3 years and Québec in the last 2. Ontario saw slight growth in 2019, and while Alberta still saw a decline in 2019, it was a smaller decline than in 2018.
Plus, between 2015 and 2017, Alberta saw the largest 2-year growth of any province during any 2-year period within this timeframe, going from –2.28% growth to 1.21% growth, a gain of 3.59 points.
And the number of Alberta head offices were already dropping in the 2 years leading up to the tax increase. While the tax rate was still at 10%, head offices in Alberta decreased from 399 in 2012 to 395 in 2014.
What’s interesting is that it was in 2015 when the NDP increased the corporate income tax rate from 10% to 12%. During the first two years of that higher tax rate, the number of head offices actually improved.
But then during the final 2 years of the graph, the head office count dropped again, also under the 12% rate; although, to be fair, the UCP dropped it down to 11% partway through 2019.
Does this mean that Alberta companies moved elsewhere because taxes were too high?
Well, let’s compare the numbers between 2015, when the NDP raised the corporate income tax rate to 12%, and 2019, for all 4 provinces.
What we see is that during the period that Alberta had the higher corporate income tax rate, they were the only province to lose head office. The other 4 provinces saw their head offices actually increase, with BC gaining the most.
So, did the companies all move to BC?
Well, the interesting thing is that the BC government increased their corporate income tax rate, too. In 2013, they raised it from 10% to 11%, then again to 12% in 2018, the same level the Alberta NDP raised it to in 2015.
For comparison, since 2011, Ontario’s corporate tax rate has been 11.5% and Québec’s had changed from 11.9% in 2016 to 11.6% in 2019.
When it comes down to it, while the corporate tax rate was technically higher in Alberta during this period, the other 3 provinces weren’t that far behind, ranging from 11% to 11.9% during much of that period.
It doesn’t seem worth it to move your entire corporate headquarters to a different province to save only a fraction of a percentage point on your corporate income tax.
One final thing to consider is that PEI is tied with Nova Scotia for the highest provincial corporate tax rate in the country. Between 2012 and 2019, PEI saw the number of head offices in the province increase from 14 to 18, without a single decrease in any of those years.
So, maybe it’s more than just corporate taxes that determine whether a company leaves a province or country.