Review of Canadian Tax System Needed, Panel SaysPublished on 19 May 2016 Publications by Senator Art Eggleton (retired)
Almost 100 years after the introduction of Canada’s first Income Tax Act, 50 years after the release of the Carter Commission report, and on the heels of the Panama Papers leak, the time is now for the Canadian government to engage in a review of its national tax system. This was the primary sentiment that steered panelists’ comments on tax fairness in Canada at the Senate Liberal Open Caucus on Wednesday.
“When considering all different taxes and not just income taxes… analyses show that our tax system has become considerably more regressive in the last quarter century,” said Toby Sanger, Chief Economist with the Canadian Union of Public Employees. Due to a supply driven and trickle down economic approach to tax policy, today, “the top 1 percent of Canadian income earners paid a lower overall rate of tax than the 10 percent with the lowest income.” While there was some recognition of government’s efforts to address the use of tax havens at the individual level, it was noted that much more work is needed, particularly in regards to the corporate use of tax havens.
Canadians for Tax Fairness’ Executive Director Dennis Howlett told the meeting that, “the majority of the business use of tax haven is legal, although a lot of it falls in a gray area for which we have very poor rules.” To address this, Mr. Howlett pointed towards MP Murray Rankin’s proposed economic substance law, as well as the reintroduction of a cap on interest payments to offshore subsidiaries, as good starting points to reform the corporate tax laws to curb the corporate abuse of tax havens.
While acknowledging some positive efforts undertaken by the current government, such as reversing income tax splitting, implementing the Canada Child Benefit, and promising to review regressive tax expenditures, the panel also identified opportunities for improvement. They suggested a variety of mechanisms to help level the tax playing field in Canada, including eliminating preferential treatment for employee stock options as well as revising the rules providing for non-taxation of capital gains on one’s principal residence .
Senator Percy Downe suggested that there are policies the government should consider to make Canada’s taxation system more transparent. Last year Senator Downe tabled a Bill called the Fairness for All Canadian Taxpayers Act which called for changes to the Income Tax Act requiring the Canada Revenue Agency to annually report how much money is lost to evasion. “The problem at the (CRA) in my opinion is the lack of transparency and openness,” he told the meeting. “Particularly when you compare it with what other countries are doing.”
Ultimately, the panel unanimously agreed that the release of the Panama Papers has resulted in an increased appetite for tax fairness in Canada, presenting the Canadian government with a unique opportunity to engage in a visionary review of our tax system. “Tax reform is a very rare occurrence and therefore it is valuable,” said Luc Godbout, Professor at the University of Sherbrooke and Chair of the Quebec Taxation Review Committee. Similarly, Joe Boughner, Director of Communications at the Association of Canadian Financial Officers, stated that the Panama Papers present Canada with rare moment to use momentum from public interest to make important tax reforms. “It’s incumbent on all of us to find a way to keep that interest up and keep the pressure on as we start to shift our thinking to procedural standards and complex solutions,” he said. “We can’t let the public dialogue on this issue die.”
Open Caucus: May 18, 2016—Tax fairness