"In large part, this upward movement in personal taxes is the result of continued interest in economic recovery and increased debt concerns," said Jim Yager, Tax Partner and National Leader, International Executive Services, KPMG LLP. "Many economies, including Canada, deemed it necessary to increase their highest rate of personal income tax through one of two approaches, the creation of a new tax band for high income earners, or through temporary taxes to address immediate deficit concerns."
Of the 114 countries studied, Canada was one of many to introduce new tax bands for high income earners. In particular, Ontario's recently announced tax increase for high income earners contributed to Canada making the list of locations that introduced additional tax bands for its highest earners in 2012.
When it comes to Canada's neighbours to the south, there were no changes to top federal rates in the US in 2012. However, US tax cuts are once again scheduled to expire at year's end, and if on schedule, would see top US Federal tax rates increase from 35 percent to 39.6 in 2013.
"There is a high probability that increasing economic pressures may give multinationals reason to relocate their executives," said Howard Greenberg, Partner, Immigration Practice, KPMG Law LLP. "Given the increase in rates, and that mobility is often an option for Canadian businesses, it will be interesting to see whether Canadian businesses or high income earners relocate to places that offer more attractive personal tax rates for its highest earners."
The survey also compares the amount of tax an individual will generally pay on income equal to US $100,000 when provincial and state income tax and social security taxes are taken into account. Of the 114 countries studies, Canada ranks 40th from the top, with a tax burden lower than some European countries, but higher than the US.
While these top rates may appear high, it is important to remember that a country's highest personal income tax rate is only one indicator of what taxes individuals may pay on their income, and that they are just as influential as other taxes that may apply.
KPMG's Individual Income Tax and Social Security Rate Survey is a cross-border survey of personal tax and social security rates with historical data from 2003-2012. The report covers 114 countries, concentrating on the highest level of personal tax payable to the central government.
The study was commissioned by KPMG's IES practice, comprising professionals from across our global network of member firms.
A copy of the survey is available at: www.kpmg.com/tax or visit our online tax rate tool at: www.kpmg.com/taxrates for easy corporate, indirect and individual income tax rate comparisons and analysis.
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National Manager, Media Relations
KPMG in Canada