Canadian micro and small businesses are paying significantly more in taxes than their U.S. counterparts, according to new research from the Canadian Federation of Independent Business (CFIB).
According to the report, a firm with four employees in Canada pays, on average, 20% more in taxes than one of the same size in the United States. Meanwhile, a 25-employee business faces a 23% higher tax burden.
The findings highlight growing concerns that Canada’s tax system is holding back productivity and discouraging investment at a time when small firms are already struggling to remain competitive.
“U.S. tariffs are not the only competitive issue facing Canadian small businesses,” Bradlee Whidden, CFIB’s senior policy analyst for Western Canada, said in a statement.
Corporate and property taxes widen the gap
The report shows payroll taxes remain heavy on both sides of the border, but Canada’s higher corporate and property taxes are the main drivers of the disparity. CFIB argues that this tax gap leaves Canadian firms with less money to invest in wages, operations and growth.
“When you look at the numbers”, Whidden said in the release, “it’s crystal clear: smaller businesses in Canada are already at a serious tax disadvantage, which was just made permanent by recent pro-small business changes in the United States through the Big Beautiful Bill.”
The report’s state rankings across both countries underscore the divide: U.S. states like South Dakota, Wyoming and North Dakota top the list for tax competitiveness, while Canadian provinces dominate the bottom.
For example, Quebec placed last for both micro and small business categories, while the Atlantic provinces such as Nova Scotia, New Brunswick and Prince Edward Island also performed poorly. Even Canada’s most competitive provinces — British Columbia for microbusinesses and Saskatchewan for small firms — still lag behind most U.S. jurisdictions.
Canada’s facing an uphill battle
The report from CFIB argues that while taxation may be necessary to boost government revenues, excessive taxes risk making business activity prohibitively expensive, while also pulling money out of communities.
To address the imbalance, CFIB is urging all levels of government in Canada to reduce the tax load on smaller firms. Their recommendations include:
- Lowering corporate income tax rates for small businesses
- Increasing the small business deduction threshold and indexing it to inflation
- Reducing property taxes and narrowing the commercial/residential property tax gap
“Trade disruptions have put the spotlight on Canada’s uphill battle to remain competitive with the United States,” Juliette Nicolaÿ, CFIB policy analyst for national affairs, said in a statement.
“While we can’t control what other countries do, we can’t ignore the widening gap between Canadian small firms and their U.S. competitors. It’s time for governments to step up with policies that lower the cost of doing business in Canada.”
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