US–Canada Economic Relations
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NO TWO NATIONS MATCH UP MORE CLOSELY TOGETHER OR ARE WOVEN TOGETHER MORE DEEPLY, ECONOMICALLY, AND CULTURALLY THAN THE UNITED STATES AND CANADA.
In December 2010, I wrote an introductory article for the Observer about Canada. It summarized macro-demographics, economy, Canada–US relations, and so on. A review of that article can reacquaint.
My observation over 30 years of personal involvement and observation in both countries confirms that the only difference between the two from a business standpoint is a simple “line on a map.” This is reinforced by other large and small active real estate developers/investors heavily involved in cross-border activity. We research potential market gaps the same way; underwrite risk the same; identify cap rates, IRR, discount rates and other opportunities the same; have the same asset class options; deal in major city and/or secondary markets the same; and so on.
The only continuing difference I observe is the demonstrated desire for expanded knowledge and observation from participants of one country to the other. Canadian stakeholders carry out ongoing comprehensive research and analysis about the United States. Not so much the other way!
Why?
The United States and Canada enjoy the world’s largest and most comprehensive trading relationship, which supports millions of jobs in each country. Since the implementation of the North American Free Trade Agreement in 1994, trade between the United States and Canada has more than doubled.
$1.4 Trillion Economic Relationship
The United States and Canada share a $1.4 trillion bilateral trade and investment relationship.
US–Canada two-way trade in goods and services totaled nearly $759 billion in 2014. US and Canadian bilateral investment stock totaled nearly $698 billion.
US exports to Canada totaled $375 billion in 2014—16% of total US exports. Canada is the number-one export market for 35 US states.
Growth in the US economy translates into growth in Canada—20% of Canada’s GDP comes from goods and exports to the United States.
Canada is the largest foreign supplier of oil, natural gas, and electricity to the United States. Nearly 40% of US crude oil imports came from Canada in 2014.
Our Largest Trading Partner
Canada and the United States trade more than $2 billion in goods and services daily.
US exports to Canada exceeded total US exports to China, Japan, South Korea, and Singapore combined in 2014.
Canada exports more goods to the state of Michigan than it does to the European Union.
In 2013, Canadian travelers made 23 million trips to the United States and spent $28 billion, while American travelers made 12 million trips to Canada and spent $8 billion in 2013.
More than 28,000 Canadian students attended US schools in 2013–2014, while more than 12,000 American students studied in Canada in 2013.
Investment Partners
The United States is Canada’s primary source of direct investment, with investment stock totaling $386 billion in 2014.
Canadian foreign direct investment (FDI) in the United States was $311 billion in 2014, making Canada the fourth largest source of FDI in the United States.
US subsidiaries of Canadian firms employed more than 546,000 employees in 2011, with an average wage of over $65,000.
And, finally—
2015 CORPORATE TAX RATES
(supplied by KPMG)
UNITED STATES
The corporate income tax rate is approximately 40%. The marginal federal corporate income tax rate on the highest income bracket of corporations (currently above $18,333,333) is 35%. State and local governments may also impose income taxes ranging from 0% to 12%; the top marginal rates average approximately 7.5%. A corporation may deduct its state and local income tax expenses when computing its federal taxable income, generally resulting in a net effective rate of approximately 40%. The effective rate may vary significantly depending on the locality in which a corporation conducts business. The United States also has a parallel alternative minimum tax (AMT) system, which is generally characterized by a lower tax rate (20%) but a broader tax base.
CANADA
The corporate income tax rate for corporations operating, say, in Ontario is 26.5%. It comprises a 15.0% federal tax component and an 11.5% provincial tax component. Depending on the province, the combined general corporate income tax rate ranges from 25% to 31%. Lower corporate income tax rates are available to Canadian-controlled private corporations (CCPCs) on their first CAD$500,000 (CAD$350,000/CAD$425,000 for certain provinces) of taxable active business income. A 2015 representative tax rate for a CCPC on its first CAD$500,000 of active business income is 15.5% (an 11% federal tax component and a 4.5% provincial tax component). Depending on the province, the 2014 combined active business income tax rate ranges from 11% to 19%.
Conclusion
Gap real estate opportunities continue in our interdependent cultures, resulting in many added opportunities for all.
Remember, it’s only a “line on a map”
