According to a recent report by the Chartered Professional Accountants of Canada, our tax system has been described as “outdated” and “overly complex”. The nature of how we’ve designed it has meant negative consequences on both taxpayers and business owners.
There’s no disputing that Canada’s tax system sometimes seems to be endlessly complex. Some have argued the tax system does not do enough to help businesses grow, while others will demonstrate there’s a lack of compliance with the tax system among corporate clients. In an effort to deliver maximum social benefit, the government has focused on tax expenditures – something which the CPA has criticized for the complexity it adds in.
It’s been years since the CPA first requested a comprehensive review of Canada’s tax systems. Countless other organizations have followed suit with their own requests, including the CD Howe Institute, the OECD, and our Senate’s own finance committee.
In the CPA Canada report, they maintain the more complex the system is, the more this is shutting out low-income Canadians from benefiting from certain income supports. Subsequently, it also challenges small business owners with ever-changing conditions that they must comply with. If the report’s to be believed, the ultimate result of our complex tax system is a loss of competitive edge in personal and corporate taxes, and discouraging foreign investment.
The tax system has been one of several systems wherein there’s constant battle between business/corporate interests and that of the general population. On one hand, the lower and more simple the tax rate is, the more jobs that can be created, the more investment Canada can attract from foreign stakeholders, and the more competitive we can be among companies selecting between us and United States for headquarters, manufacturing facilities, and more.
On the other hand, there’s been call to grant Canadians more income supports to combat rising inequality, to incentivize education in an attempt to motivate labor force growth, and more.
Can all interests be satisfied in our tax system – in some cases, yes and in other cases, definitely not. This is why low-income and vulnerable Canadians do not have enough income supports while simultaneously Canada has lost its corporate tax advantage compared to the US and elsewhere where rates have fallen.
Tax = government income. When one lowers the tax rate, they lower the income the government has to use to provide services and make investments. Canada’s been hesitate to lower the corporate tax rate at the same intensity of similar countries because we don’t want to lose that income.
Beyond these issues, there’s also the complexity of the tax system which needs to be highlighted. When a small business owner or everyday Canadian is unclear on how to file, what they can claim as expenses, or what they’re eligible for, risk of non-compliance rises. Aligning ourselves with the CPA Canada report, we believe there’s an unreasonable level of complexity as it pertains to Canada’s income tax, GST/HST, and corporate tax systems. It is an imperative that we fix our tax system, not only to allow our business environment to remain competitive internationally but to help everyday Canadians receive the tax support they are eligible for.
