Once again the Trudeau government has stepped on the hornet’s nest called tax reform, and once again it is getting stung. We have seen this happen before: for example, with the changes to the taxation of small private corporations in 2017, and with the “proposal” of the same year to tax employee health and dental benefits as income. Both encountered a storm of opposition, and were either amended or killed.
Probably the government’s advisers thought a single-bullet reform was more manageable politically than one aimed at closing a number of tax breaks at one go. But it hasn’t tended to work out that way. With a broader reform, it is true, you antagonize many more taxpayers. But that in itself arguably makes it less toxic politically: if everyone’s ox is being gored at the same time, it’s harder for any one group to complain of ill treatment.
But perhaps the most urgent imperative is sweeping reform to Canada’s tax system: the single largest barrier to investment and the biggest impediment to its efficient allocation. A good place to start is with the Finance Department’son the cost of federal “tax expenditures.” As the term implies, these are tax preferences that, by taxing certain taxpayers, activities and things at less than the statutory rate, cost the government money, the same as a spending program.
There are lots more of these on the corporate income tax side. While many are inefficient and wasteful, most are fairly small beer, in terms of revenue forgone. The biggest exception: the preferential rate for small business. This would still leave Canada with relatively high marginal tax rates at the top end: at about 50 per cent, federal and provincial combined, Canada’s tax system would remain among the most steeply progressive in the developed world. But for most people below the top bracket it would mark a major improvement in tax competitiveness.
of the Accelerated Investment Incentive – then it is more systemic pro-investment reforms, the kind that would really catch the attention of international investors.moving to a distributed profits tax: Profits would only be taxed on distribution to investors, exempting those reinvested in the company.replacing the corporate income tax with a tax on corporate “rents.
Opinion Andrew Coyne Coyne Tax Income Reform Gains Rate Canada Savings Business Bank Of Canada Canada Robin Boadway
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