Factsheet: Five tax loopholes that must go

Updated 5 April 2022

By Erika Beauchesne & Darren Shore

Justin Trudeau and his Finance Minister Bill Morneau are in a tight spot. They’re facing an election in seven months and need to commit funds to the promises they made during the last election. At the same time, they’re running higher deficits than expected while the economy is showing signs of slowing—and they probably don’t want to raise tax rates right before an election, either.

The good news is they have a way out of this quandary by fulfilling one of the election commitments they made four years ago: to review tax loopholes with the core objective of reducing those that unfairly help individuals with high incomes (Real Change, p. 80).

Morneau’s department did review tax loopholes, but it was done internally with no public consultation or discussion. Unfortunately, their plan to limit the use of private corporations to avoid taxes was badly enough launched that it met strong opposition, was only partially implemented and scared them off further reforms. There’s much more that should be done to close unfair and ineffective tax loopholes.

As a study by the CCPA’s David Macdonald showed, over 90% of the federal government’s personal income tax expenditures provide greater benefits to higher incomes than lower incomes, collectively costing government more than $100 billion a year in lower revenues. Higher tax rates on top incomes don’t do much if individuals can easily avoid taxes using these loopholes.

1. THE CAPITAL GAINS EXCLUSION LOOPHOLE

2. THE STOCK OPTION LOOPHOLE

3. THE BUSINESS MEALS AND ENTERTAINMENT EXPENSE DEDUCTION LOOPHOLE

4. THE CORPORATE DIVIDEND TAX CREDIT LOOPHOLE

5. TAX HAVENS

Canadian governments lose an estimated $8 billion in annual revenues from corporations and wealthy individuals shifting their wealth and profits through tax havens, via both illegal and legal means.  As a result of public pressure, the federal government has put some additional resources into fighting international tax evasion, and will have new tools at its disposal as a result of international action to share information. But much more needs to be done. Wealthy perpetrators and promoters of tax evasion schemes are getting off lightly. Not a single Canadian has been charged yet for international tax evasion. Canada also must take steps to close the loopholes that allow large corporations and wealthy individuals to pay very little tax through what is now perfectly legal international tax avoidance. Other major countries are taking action, but the Canadian government is still dithering, saying we’ll wait and see.

$20 BILLION TO RECUPERATE

Just these five loopholes account for over $20 billion annually that the federal government could recuperate from closing unfair breaks and write-offs. That’s more than enough to eliminate the deficit or, more importantly, provide the funding necessary for important public services that would make all Canadians better off, such as a national affordable childcare program and pharmacare. Tax loopholes make the system much less fair and leave the rest of us worse off: it’s time to fulfill election commitments and close them once and for all.

 

Resource type: 
Website Resource