House Call with Carol Hughes

Time to clean up our tax problems

There’s no doubt tax time can be stressful. Most of us understand there are consequences for cheating on taxes, but may not be aware that the Canada Revenue Agency (CRA) also writes off some debt as being uncollectable. While this doesn’t often make news, the fact that this type of forgiveness was extended on a grand scale this year is proving an exception. That’s because the amount being written off exceeds $133 million dollars and Canadians have no way of knowing the source of the original tax bill.

The CRA must follow confidentiality protocols and there are little in the way of clues beyond the nature of the debt which relates to unspecified excise taxes or duties. While our curiosity may remain unsatisfied on this case, there is no end of opportunities for the CRA to root out instances of tax avoidance. What that requires is the will and the resources which are often in short supply.

Off-shore tax havens are the obvious place to start with estimates pegging the problem at $3 billion in lost tax dollars a year. Despite that, government after government has been reluctant to come up with the resources needed to make a significant dent in the problem. There was a bit of money in the last budget, but it doesn’t come close to replacing what the previous government stripped away from this arm of the CRA.

Anyone who doubts the extent of the problem can look to the Panama Papers leak as a good example. The 2016 leak of $1.5 million documents detailed the shady dealings of just one Panamanian law firm and its wealthy clients. From that data CRA was able to identify nearly 900 Canadian individuals and corporate entities that were clients of the firm. Three years later, there are only five criminal investigations underway after 126 audits completed with no criminal charges laid–yet.

Taxes bring out some incredibly strong opinions. The old joke that the only things certain are death and taxes illustrate that to a point, but lost in the punch line is the fact that taxes allow us to provide services we rely on. That’s why it’s so important that we look to ensure incentives are performing as they are intended and to put an end to those that aren’t.

That was the message New Democrats delivered ahead of this year’s budget. They argued that incentives such as stock option deductions act more as tax avoidance mechanisms than investment tools. While there may be a role for this kind of incentive when a company is starting out, the tool should be earned rather than handed out.

There’s a similar problem with capital gains taxes which are set far too low. In the early 2000s the amount of profit from the sale of an eligible investment that is taxed was lowered from 75 to 50 percent and stayed there. This applies to profits made from real estate sales and investments, but not to items such as primary residences, registered investments (RRSPs, TFSAs and RESPs), or even on the sale of a small business. This tax loophole is designed to help the wealthiest at everyone else’s expense.

It’s time to implement measures to ensure tax fairness, but budget after budget have favoured the wealthiest. By refusing to combat tax evasion and non-performing loopholes, the government continues to be starved for revenues. As the Canadian Centre for Policy Alternatives recently highlighted, federal revenues are presently 14.4 percent of GDP, much lower than the 50 year average of 16.4 percent. This two percent difference will result in $46 billion in lost revenues in 2019 alone.

Meanwhile, Canadians are struggling with an unprecedented housing crisis, rising out-of-pocket healthcare costs, and a critical lack of affordable child care. Only when we have tax fairness will the government be able to help fulfill these basic needs.