Ontario's corporate tax rates are already comparable to those of its strongest competitors, the U.S. Great Lake States (see chart). But recent provincial and federal legislation will make Ontario's case even stronger. By 2005, the combined federal and provincial corporate income tax rate (CIT) will be cut to 30.1 percent, down from 42.1 percent this year.


      Under the Federal government's $100 billion, five-year tax reduction plan, the 28 percent general CIT rate was reduced by one point on Jan. 1, 2001. By 2004, the general CIT rate will be cut to 21 percent, dropping two points per year. And the capital gains inclusion rate, which was reduced to two-thirds from three-quarters in February 2000, was further reduced to one-half as of Oct. 18, 2000.
      At the provincial level, the general CIT rate will be cut by 6 percent -- from 14 percent to 8 percent -- by 2005. In August, the provincial government set the tax cut schedule: CIT rate will be cut to 12.5 percent on Jan. 1, 2002; 11 percent on Jan. 1, 2003; 9.5 percent in 2004; and 8 percent in 2005. The manufacturing and processing income tax rate also will be cut on an annual basis to 8 percent in 2005.
      In addition, the provincial government took steps to eliminate the job-killing capital tax, which critics consider a discouragement to investment. Internationally, Canada is almost unique in taxing capital. Ontario's first step toward eliminating the capital tax was to remove it on the first CA$5 million of taxable capital. This removes the tax for more than 11,000 small and medium-sized Ontario businesses.
      In November 2000, Minster of Finance Ernie Eves accelerated the province's planned business education tax cut (BET), resulting in a reduction of $130 million for Ontario businesses in 2001 -- doubling the reduction from last year. At the same time, the province continued to provide protection for businesses against unmanageable property tax increases as municipalities move to a current value assessment system.
      Overall, the Ontario government has cut taxes, eliminated 1,700 unnecessary red-tape regulations, repealed more than 50 acts, amended more than 200 additional acts and passed 13 red-tape -reduction bills to make it easier for businesses to operate successfully.
      Add to this the fact that manufacturing costs have declined by about 20 percent over the last decade, and it's easy to see why Toyota and others have chosen Ontario for investment. "Our manufacturing costs are lower, our wage rates are lower; that's what they're really interested in," says Richards. "Another thing is that we're funding a public healthcare system without taxes. That's a huge benefit to companies, especially auto companies. What they would pay per car or per worker in Detroit for healthcare coverage equivalent to here is drastically different."