March 28, 2019 - Article by Jared Burns, CPA, CA for the Times & Transcript

Someone once told me “don’t just be another voice in the choir”.  I have never sung in a choir (for obvious reasons) and I don’t think I’ll start now.  So, instead of another article about this year’s federal budget, I am going take a different direction and write about what was not in the budget.  There are two tax related items absent from the 2019 budget worth discussing. 

Tax Rates Unchanged

The first is no tax rate changes for personal or corporate taxes.  While it not unusual to have a budget void of any rate changes, it was somewhat surprising that there weren’t any indications from Ottawa that they would consider rate changes following the drastic tax cuts made south of the border in the US and implications of the new USMCA trade agreement.  Analyzing economics and fiscal policy based on tax rates alone is irresponsible but, it’s a legitimate concern that Canada is losing talent and investment to the U.S.  Tax rates tie into the second, bigger issue, snubbed from the budget.

No Comprehensive Tax Review

The second missing tax piece from the budget; no mention of a Comprehensive Tax Review.  I’ll start by quickly explaining what is generally meant by the term “comprehensive tax review”, simply put, it is the process of having a lot of smart people looking at the entire Canadian taxation system as a whole, not just bits and pieces of it.  The last comprehensive tax review was launched in 1962 and eventually brought into law in 1972.  For some perspective, Tim Berners-Lee invented the World Wide Web 18 years later. 

Calls for a comprehensive tax review have gained momentum recently.  Groups supporting include; CPA Canada, the Canadian Chamber of Commerce, the House of Commons Standing Committee on Finance, the Standing Senate Committee on Banking and the OECD. 

Why do I feel that we need a complete review?  I’ll draw on one analogy that I think explains my position.  Think of our tax code as your family sedan.  Once a reliable car, it ran smooth and got you to where you wanted to go.  As the world has changed, tax rules needed to change to keep up.  Another driver of changes to tax law come from politics.  Almost all voting citizen are subject to taxes, it makes sense that political parties include in their platforms targeted tax rules they feel will help them get elected or stay elected.    Thus, with all the changes to law made in the last 50 years we are left with a car that has had so many repairs, modifications, spare parts, accessories that it is hardly recognizable. 

Why is this a problem?  First, the car now costs a fortune to run (think of the billions of dollars spent in enforcing our tax laws, CRA auditors, court cases etc.).   Second, now only a handful of seasoned, highly trained mechanics know how to work with the car.  Meaning the tax code has gotten so complex that it is beyond difficult to comfortably sort through the tax consequences of a transaction.  Third, the danger that the car will breakdown and not be able to get you to your destination has gotten so great that many decide not to drive at all. Think of the investor or business owner who will avoid a worthwhile endeavor due to the uncertainty associated with analyzing the tax implications. 

In my opinion, CPA Canada’s report “The Best Way Forward: Designing a Tax Review for Canada”, is right on point when they say, “Canada needs a 21st-century tax system: a simple, predictable, fair, efficient and transparent tax system with internationally competitive tax rates, where everyone pays their share so that all Canadians prosper.”  At some point, government needs to show a commitment to having a serious discussion about tax policy review.