Small- and medium-sized businesses in five industrial sectors spent an estimated $1.09 billion last year filling out forms to comply with 11 key government information obligations — everything from filing income tax forms to paying federal and provincial sales taxes. Businesses in these sectors account for approximately 40% of the revenue for small- and medium-sized businesses across all industrial sectors.

According to the survey, 76% or $830 million was outsourced to external service providers such as accountants, income tax specialists and payroll service providers to comply with their reporting obligations.

The balance was the cost incurred by businesses when compliance was managed internally. Internal costs were based on the time and salaries of individuals within a business who are responsible for compliance.

This is the first Statistics Canada survey on regulatory compliance costs. The results are intended to help determine whether future efficiency measures introduced by government are reducing the compliance burden facing businesses. The survey is a component of the Government of Canada's Paperwork Burden Reduction Initiative.

The survey focuses on administrative compliance requirements such as completing forms and reporting information. It did not attempt to measure other regulatory burden components such as capital costs incurred to comply with regulations. Survey coverage was limited to 5 industrial sectors, 11 regulations, and small- and medium-sized establishments with fewer than 500 employees and revenues of between $30,000 and $50 million. Survey estimates are available for five regions: the Atlantic, Quebec, Ontario, the Prairies, and British Columbia.

The five industrial sectors selected from the North American Industrial Classification System sectors were: manufacturing; retail; professional, scientific and technical services; accommodation and food services; and other services (except public administration).

The 11 regulations in-scope for this survey are payroll remittances, record of employment, T4 summary/individual T4s, workers' compensation remittances and claims, T1/T2 income tax filing, federal/provincial sales taxes, corporate tax instalments, corporate registration, mandatory Statistics Canada surveys, municipal operating licences and permits and provincial licences and permits.

The survey also showed that as businesses become larger in terms of employment, they outsource a larger percentage of their compliance costs.

Income tax filing accounted for 39%, or $425 million, of total compliance costs, followed by payroll remittances, which represented 16%, or $172 million. Federal/provincial sales tax filing accounted for 14%.

The survey also found that as business size increases, total compliance cost increases, yet compliance costs per employee drop. This can be partly explained by the fact that although compliance costs rise as employment increases, larger businesses tend to have trained staff dedicated to compliance or the compliance is outsourced to service providers.

Other findings show significant regional variations in average annual compliance costs. These ranged from a high of $2,157 per establishment in Ontario to a low of $1,687 in Quebec. There was a wide variation among industrial sectors as well. Compliance costs averaged $3,378 per establishment in the manufacturing sector, just under $2,200 in retail trade, and just under $1,600 in other services (except public administration). The average size of establishments within a region or industrial sector will have an impact on compliance costs.

Data from the first phase of this survey were released in The Daily on July 28, 2006. That release focused on the internal cost of compliance, the means by which businesses comply and the perception of businesses to paperwork burden. An analytical paper on the first phase results is available at Industry Canada's website (www.reducingpaperburden.gc.ca).

Note: Corrections have been made to estimates from the Survey of Regulatory Compliance Costs for the reference year 2005.

All statistical tables produced from the earlier database have been corrected and are now available. Corrected data have also been incorporated into the Daily text on Statistics Canada's website.

These new data correct an error in calculating time conversion involving information from 2005 respondents who reported time using the "person-days per year" option. These data were processed using a conversion factor of 24 hours in a day instead of an eight-hour day.

Estimates for 2005 were also improved by imputing for all missing variables from respondents using standard methodologies.

Definitions, data sources and methods: survey number 5093.

For more information on the concepts, methods or data quality of this survey, contact Client Services (toll-free 1-877-679-2746), Small Business and Special Surveys Division.

For more information about the Paperwork Burden Reduction Initiative or analytical insights into survey results, contact Randa Saryeddine (613-941-8195; saryeddine.randa@ic.gc.ca), Industry Canada.