The preconception is that Bermuda is a low-tax jurisdiction and Canada a high-taxing country.

The reality is just the opposite ? if you?re trying to run a small business.

That is what those running the Igility Group of Companies have found since they opened an office in Guelph, near Toronto, to deal with accounting, administrational and help-desk needs.

Company president Aaron Smith said the operation, which employs 20 staff, costs around 50 percent of what the equivalent operation would cost in Bermuda.

Cost savings have come in the areas of taxation (payroll tax and customs duty), salaries, health insurance and the rental cost of the premises.

While Bermuda?s tax system works well for the international business sector, it imposes a much greater burden on smaller local businesses, Mr. Smith argued.

Igility is so pleased with the performance of the unit, that it has incorporated another company in Halifax, Nova Scotia, called ReefLine, to extend its accounting and help-desk services further. ReefLine has a general manager and two other employees, but Igility hopes it will expand too.

Igility is is the parent company of internet service provider Transact, online classified advertisement site Emoo and information technology specialists SBI, among others. It set up its Canadian office three-and-a-half years ago.

?All of our systems monitoring, our help desk, back-office work and accounting is based in Guelph,? Mr. Smith said. ?If a client in Bermuda calls our round-the-clock help desk, he will be talking to someone in Canada.

?We started off with four or five individuals at Igility North and within 15 months we had 20 employees.?

When Mr. Smith and Igility chief executive officer Jamie Thain did the maths, they realised their tax burden was significantly lower in Canada than in Bermuda ? and they were surprised by how much.

?I don?t mind paying tax in a system based on profitability,? Mr. Smith said. ?In Canada, you only pay tax if you make a profit, but in Bermuda your tax bill is the same, whether you make a profit or not.?

Bermuda?s payroll tax rate is 13.5 percent, at least 8.75 percent of which must be paid by the employer ? though some employers choose to pay the employee?s 4.75 percent share as well.

?As well as payroll tax, the Government takes a quarter of the value of every piece of inventory a company has,? Mr. Smith added, referring to customs duty charged on imported goods. ?Small businesses have to pay all of that before they?ve made anything.

?The cost of running the office there is 50 percent of what it would be here and that allows us to be more competitive. Our Bermuda customers expect us to be competitive with firms in the US and Canada and we have to do this to remain competitive. As a Bermudian, this concerns me.?

Both Mr. Smith and Mr. Thain believe Bermuda?s tax system meets the needs of the Island?s international companies but imposes major burdens on small local businesses. A reinsurance company with a staff of 60 people making, or losing, tens of millions in net income in a single quarter would barely notice the effects of payroll tax or duty, they argue. But for a company like Igility, employing a similar number of people, the burden takes a large bite out of the bottom line.

Problems with backlogs of work permit applications at the Immigration Department and the introduction of the six-year time limit for guest workers, are also persuading more businesses to look for solutions overseas.

?With Bermuda?s tax system you get situations where the Government can put people out of business,? Mr Thain said, ?because if they make a $100,000 loss they still pay the same amount in taxes as if they make a $100,000 profit.

?As business people, we used to be thinking: What jobs and operations can we set up here? Now we are thinking: What can we move from here??

Igility had planned to set up a help desk in Bermuda and had gone as far as preparing cubicles and desks. But when it came to hiring, they found that candidates? salary expectations were far in excess of their value to the company. Coupled with that, there was a limited number of local people available.

?We opened our office in Guelph, partly because it has good travel connection (the Air Canada Toronto flight), also because it is outside Toronto and therefore more affordable, and also because it is a university town,? Mr. Smith said.

?There is a great pool of people with the right skills for us who want to work,? Mr. Smith said. ?Whenever we advertise jobs on the internet, we have no shortage of quality applicants.?

Igility?s Canadian operations were established primarily to deal with its own back-office work, but increasing demand from clients to help them out with tasks such as accounting and doing the payroll has led to an expansion. The company has even picked up some business from Canadian companies.

Other Bermuda companies have recognised the advantages of setting up in Canada, including Flagstone Re, which already has a base in Halifax, and Butterfield Bank, which intends to base an office there that may eventually employ 400 staff.