It’s time for a complete tax overhaul in Canada

Kim Moody of Moodys Gartner Tax Law says we've lost our competitive advantage and desperately need to restore it

Kim Moody is director of Canadian tax advisory at Moodys Gartner Tax Law LLP.

Kim Moody

What are the most concerning issues facing business when it comes to federal taxation and policies?

Moody: I think the most concerning issues facing – both federal and provincial – are: high personal tax rates. Both the federal and provincial governments have dramatically increased personal income tax rates.

For example, in Alberta prior to 2016, the highest marginal personal income tax rate was 39 per cent. Today, because of the federal Liberal and provincial NDP increases – which is consistent with their policy platforms that continuously attack the ‘wealthy’ (apparently the ]wealthy’ is anyone who makes over $200,000 per year).

Other provinces – like Ontario, Quebec – have marginal rates of 53 per cent plus. This, in my opinion, is putting a significant damper on Canada’s – and Alberta’s – ability to attract skilled labour. It has also contributed to a significant flight of capital from Alberta and Canada so as to ensure the ‘wealthy’s’ capital is not unfairly attacked.

In addition, corporate tax rates have increased in Alberta by two per cent during the NDP’s tenure.

Lastly, the federal government has introduced complex provisions that are putting significant strains on private businesses and their shareholders (such as significant restrictions on the ability to claim the small business deduction, significant changes to the taxation of routine inter-corporate cash movements, changes to the taxation involving income splitting, which is significantly increasing the tax burden of families and other tax measures) that make it very difficult for small or private businesses to comply.

In my opinion, it’s time for the federal government to commence a thorough review of our tax system with the objective of introducing change that will simplify and make it easier for businesses and their shareholders to comply.

The last time Canada had a thorough review was the Royal Commission on Taxation, which released its landmark report in 1966. After much study of the report and thorough debate, landmark tax reform was brought into law in 1972. Since that time, we’ve had many amendments to the Income Tax Act and the act has since become a patchwork quilt that is almost incomprehensible.

What about competitiveness?

Moody: We need an open-for-business attitude in Canada. For example, in Alberta, the NDP have introduced significant changes to labour law that are often very difficult and expensive to comply with. While some of the changes are good and necessary, some of the changes are one size fits all that’s not appropriate to jam down job creators’ throats.

Our country and province aren’t competitive with other jurisdictions and in particular our largest neighbour, the U.S. The U.S. has undergone significant tax reform, resulting in large tax rate reductions and open-for-business policies. Not all of the measures in U.S. tax reform were positive, but the good parts are causing significant amounts of capital to move to the U.S. We need to fix this competitive mismatch.

Canada is a small country and we can’t afford to have the U.S. have tax policies that are so preferential as compared to the U.S.

The federal government made a lame attempt in its fall economic statement to provide accelerated depreciation. But that will not make a significant impact on competitiveness concerns that Canadian businesses face. Again, we need to fix this quickly.

What are the most concerning issues facing business when it comes to city taxation and policies?

Moody: I think I’ll pass on this question since I’m not a municipal tax expert, but I will say that Calgary needs to get its property and business tax allocations fixed given current challenges. You simply can’t pass along downtown tax deficiencies to the Beltline and small private businesses.

I think a good start would be significant belt tightening in costs.

What’s your sense of where the economy is?

Moody:  Overall, I think our Canadian economy is challenged. Much of it is because of increased tax rates, a not-open-for-business attitude and challenges provided by U.S. tax reform.

What are the best things businesses can do in these challenging times?

Moody:  Overall, I think businesses need to take a hard look at non-discretionary costs, ways to reduce fixed costs and look for ways to reduce tax exposure.

If possible, I think business owners should look for ways outside of Canada to help their business survive or flourish.

– Mario Toneguzzi for Calgary’s Business


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