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Briefing Package: Fair Tax Priorities for Budget 2022

Photo: Nabil Saleh

Budget 2022 Canadians for Tax Fairness

The new Supply and Confidence Agreement between the Liberal Party and the NDP promises quick action on dental care, pharmacare and long-term care to bring about substantially better healthcare for all Canadians. It also ramps up investments in affordable housing and climate action. New funds need to be identified in Budget 2022 and beyond in order to make these commitments a reality.

 

The federal budget should include immediate action to close tax loopholes and uncover tax cheats, raise the corporate tax rate, and implement a wealth tax.

 

 

THE CHALLENGE OF TAX INJUSTICE

Over the last two years, the concentration of wealth has worsened in Canada and around the world.

  • According to the PBO, the richest 1% of Canadians saw their fortunes grow by almost 20% between 2019 and 2021, adding over $500 billion to their collective wealth [i].
  • Almost three quarters of Canada’s largest corporations reported higher than average profits for 2020, during the height of lock-down measures. [ii]
  • $1.1 trillion in corporate tax revenue has been lost over the last 20 years due to corporate tax cuts, tax breaks, and lax compliance laws [iii].
  • Report after report shows that the wealthy are grossly undertaxed.

Thirty years of supposed “efficiency” practices in public services have often made services anaemic, leading at times to tragedies like the horrid conditions and death rate in long-term care homes during the pandemic.

 

Without additional tax revenues, Canada could face a period of extreme austerity within the next five years. Instead, let’s find the resources to rebuild effectively.

 

 

SOLUTIONS

To support Canada’s equitable recovery from the pandemic, and address the crises of climate change and inequality, we must finally right the tax system. Canadians for Tax fairness has identified a set of reasonable revisions to Canada’s tax code that could raise new annual revenues of over $92 billion (see below).

 

Public support: An overwhelming majority of Canadians across the political spectrum support closing tax loopholes, raising corporate tax rates, and implementing a wealth tax in order to tackle inequality [iv].

 

Political support: Every federal Party’s 2021 election platform explicitly mentioned fair taxation, with considerable overlap in the measures each Party proposed, including general agreement on improving our tax system to better address wealth inequality, housing affordability, carbon pollution, tax haven abuse, aggressive tax avoidance, and inadequate taxation of the highest incomes and corporate profits. [v] The Liberal/NDP Supply and Confidence Agreement specifically mentions fair taxation.

 

We call on the government to act immediately, to:

  • Tax corporations fairly. Apply a special pandemic-based excess profits surtax to large corporations, and raise the general corporate tax rate to 20% so as to reverse a 50 year trend of corporate tax cuts that saw the rate fall from 40% to an all time low of 15%.
  • Close tax loopholes that worsen inequality, starting with the tax breaks for capital gains and stock dividends, and preferential tax treatment for REITs.
  • Crack down on tax dodgers with better transparency and enforcement, starting with fast-tracking a public beneficial ownership registry and boosting funding for the CRA.
  • Implement a wealth tax on fortunes over $10 million.

 

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Fact Sheet 1

 

Fair tax measures that could raise over $92 billion annually

View the Fact Sheet (PDF): Fair tax measures that could raise over $92 billion annually

Over $92 billion dollars could be raised through a series of fair tax measures, outlined in C4TF’s recent Platform for Tax Fairness. These measures would require the richest individuals, biggest corporations and major polluters to pay a fairer share of government revenue.

 

$ Billions available in estimated revenue from reasonable and fair tax measures :

Revenue

(Billions)

 Tax Measure
22  Tax capital gains income at 100%, just like employment income
20  Impose an annual wealth tax on the very richest Canadians
11  International corporate tax reform to tax multinationals fairly
8  Increase the general corporate tax rate from 15% to 20%, reversing decades of tax cuts
8  Impose a pandemic super profits tax
7  Introduce a financial activities tax at 5% on profits and compensation in the financial sector
3  Increase investment in enforcement, strengthening the CRA
3  Strengthen the carbon tax framework by eliminating preferences for large emitters
2.5  Restrict the deductibility of interest by large internet platforms
2  Impose an inheritance tax on high-wealth estates
1  Reduce the corporate dividend tax credit
1  Increase the top federal tax rate on personal incomes over $750,000 from 33% to 37%
1  End the tax deductibility of advertising on foreign internet platforms
1  Impose a minimum tax on corporate book profits
0.5  Eliminate the stock option deduction
0.5  Cap lifetime TFSA contributions at $75,000
0.5  Put a $1 million cap on the business deduction for executive pay
0.45  Impose a meaningful luxury goods tax
0.3  Eliminate remaining fossil fuel subsidies
0.2  Eliminate the business entertainment expense deduction
92.95  $ Total potential revenue (billions)

 

Funds raised through these fair tax measures would be enough to pay for

  • universal pharmacare ($15 billion) [vi],
  • ending the First Nations’ water crisis ($7.4 billion) [vii],
  • energy retrofitting of our homes ($6 billion),
  • the Canada Child Benefit including Child Disability Benefit ($27 billion) [viii],
  • the cost of improving long-term care ($13 billion) [ix],
  • and more

 

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Fact Sheet 2

 

The Liberal government track record on tax fairness

View the Fact Sheet (PDF): The Liberal Government Track Record on Tax Fairness

The Liberal government has made a number of promises on fair taxation since 2015. Some have been fulfilled, others have not, and many could be improved. Below is a status update as of March 2022 on the most notable promises made over the last 7 years in terms of achieving tax fairness.

 

 

FAIR CORPORATE TAXATION

Measures Promised Status C4TF’s Recommendation
Tax some excess profits gained during the pandemic with a

“Canada Recovery Dividend” of 3% on banks and insurance companies with earnings over $1 billion per year.

Estimated annual revenue: $1.2 billion.

Promised in 2021 platform.

Not yet delivered.

Impose a more general excess profits tax. Many of Canada’s largest companies that made record profits during the pandemic also paid low effective tax rates, used tax havens, and received emergency worker support money (CEWS). [x]

Estimated revenue: $8 billion [xi]

Impose a digital services tax.

Estimated annual revenue: $1 billion. [xii]

Promised in 2019 election platform and the 2021 Budget

Deferred in exchange for watered-down OECD tax deal.

Impose a Canadian digital services tax now, and keep it.

Estimated revenue: 50-100% more than companies like Amazon would pay under the OECD tax deal. [xiii]

 

“Review the tax treatments” of the “large corporate owners” of residential housing, including Real Estate Investment Trusts (REITs), and “curb excessive profits.” [xiv]

(Note: REITs pay zero corporate income tax.)

Promised in 2021 platform.

Not yet delivered.

Eliminate the preferential tax treatment for investment trusts.

Estimated annual revenue: $120 million [xv]

Limit amount of interest costs that can be deducted from corporate income.

Estimated annual revenue: $1.6 billion in 2022. [xvi]

Promised in 2019 election platform. Budget 2021 proposed a limit of 40% of earnings as of 2023, and 30% for a subset of businesses.

Not yet delivered.

Limit interest deductibility to 10% of earnings, as per the low end of the OECD’s suggested range.

 

FAIR WEALTH AND INCOME TAXATION

Measures Promised Status C4TF’s Recommendation
A new 33% tax bracket on income above $200,000, and a reduction on the second tax bracket from 22% to 20.5%

Estimated annual COST: $1.7 billion [xvii]

Promised in 2015 platform.

Delivered in 2016.

Add an additional bracket of 37% on the top 0.1%.

Estimated annual revenue: $1 billion. [xviii]

 

Impose a minimum 15% effective tax rate on the top 1% of earners (those making over $222,600).

Estimated annual revenue: $400 million. [xix]

Promised in 2021 platform

Not yet delivered.

Impose an annual wealth tax.

Estimated annual revenue: $20 billion. [xx]

 

Tax sales of luxury vehicles over $100,000.

Estimated annual revenue: $597 million in 2022; $686 million by 2029 [xxi]

 

Promised in 2019 and 2021 platforms.

Not delivered. New draft legislation waters down promise and expected return to as little as $125 million annually. [xxii]

Keep your original promise, and improve it: make the luxury tax progressive, and apply it to a wider range of goods and services including ‘used’ luxuries. [xxiii]
Set $100,000 cap on the stock option deduction loophole.

Estimated annual revenue: $500 million. [xxiv]

Promised in 2015 platform.

Partially delivered. Weaker $200,000 cap implemented in 2021. [xxv]

Abolish the loophole. Stock options should be taxed like all other income.

 

TAX DODGING

Measures Promised Status C4TF’s Recommendation
Loopholes: Eliminate $3 billion worth of tax loopholes. Promised in 2015 platform.

Partially delivered with weak cap on stock options loophole.

Eliminate $30 billion worth of tax loopholes. [xxvi]
CRA: Invest $2.5 billion in the CRA over 4 years to fight tax dodging.

Estimated annual revenue: $12.9 billion [xxvii]

 

Promised in 2021 platform.

Not delivered yet.

Take advantage of cross-party support to get it done quickly, and mandate/empower the CRA to provide greater transparency about taxes levied and collected. [xxviii]
Registry: Develop a public registry of the beneficial owners of corporations and trusts by 2025. Promised in 2021 budget and platform.

Promised for early 2023 in Liberal/NDP Supply and confidence agreement.

Meet the fast-tracked 2023 deadline.
GAAR: Modernize the General Anti-Avoidance Rule (GAAR) regime, to avoid corporate tax dodging via tax havens. 2021 platform.

Not yet delivered.

Updating GAAR is long overdue and needs to be done ASAP.

 

OTHER CHALLENGES

Measures Promised Status C4TF’s Recommendation
Carbon Pollution: Continue to increase carbon tax and rebate. Consider a border carbon adjustment. 2021 mandate letters.

Not yet delivered.

Put in a border carbon adjustment now. We can immediately reduce a sizeable loophole that allows some of our largest industrial emitters to avoid the carbon tax.
Tax Credits: Offer multiple tax credits on public health, education, housing, long-term care, pandemic recovery, climate change… and hope it entices the private sector to make important investments, instead of real government action. Promised before every election.

Some implemented with minimal economic benefit; others not.

 

Don’t. Tax credits offer dubious benefits at best, add unnecessary complexity to our tax system, and create potential for more loopholes. The proposed homebuyers tax credit and TFSA for first-time home buyers will make the housing market worse.
Tax filing: Complete returns for low/fixed-income Canadians.

 

Promised in 2015 mandate letter, 2020 Throne Speech.

No progress.

Implement now to allow for many low/fixed-income Canadians to receive income supports they need.

 

 

 

 

ENDNOTES

[i] https://distribution-a617274656661637473.pbo-dpb.ca/20de98fc3f4d93c5213f8d71fbe7cd89ae69cb1899e9cbf2d3ca4d57f18ab25a[ii] https://www.taxfairness.ca/en/news/report-pandemic-profits-and-public-purse[iii] https://www.taxfairness.ca/en/resource/report-january-7th-corporate-income-tax-freedom-day[iv] Abacus Data | Canadians think their tax system is unfair and support new revenue tools that bring down the deficit and reduce inequality now.[v] MEDIA RELEASE: New federal Liberal government has opportunity to act on tax fairness measures | Canadians for Tax Fairness[vi] https://www.cbc.ca/news/politics/pharmacare-hoskins-recommendations-final-report-1.5171517[vii] https://www.pbo-dpb.gc.ca/en/blog/news/RP-2122-021-M--clean-water-first-nations-is-government-spending-enough--eau-potable-premieres-nations-gouvernement-depense-t-il-assez[viii] https://www.budget.gc.ca/2021/report-rapport/anx1-en.html[ix] https://www.pbo-dpb.gc.ca/en/blog/news/RP-2122-013-M--cost-estimate-motion-77-improvements-long-term-care--estimation-couts-decoulant-motion-77-ameliorations-concernant-soins-longue-duree[x] https://www.taxfairness.ca/en/news/report-pandemic-profits-and-public-purse[xi] https://www.pbo-dpb.gc.ca/en/blog/news/RP-2122-002-M--cost-estimate-an-excess-profits-tax--montant-estimatif-un-impot-benefices-exceptionnels[xii] https://pbo-dpb.gc.ca/en/epc-estimates--estimations-cpe?epc-cmp--eid=43&epc-cmp--cid=67[xiii] https://www.taxfairness.ca/en/news/report-oecds-tax-break-tech-giants[xiv] https://liberal.ca/wp-content/uploads/sites/292/2021/09/Platform-Forward-For-Everyone.pdf[xv] https://www.taxfairness.ca/en/news/platform-tax-fairness-2021[xvi] https://pbo-dpb.gc.ca/en/epc-estimates--estimations-cpe?epc-cmp--eid=43&epc-cmp--cid=81[xvii] https://www.pbo-dpb.gc.ca/web/default/files/Documents/Reports/2016/PIT/PIT_EN.pdf[xviii] https://www.taxfairness.ca/en/news/platform-tax-fairness-2021#_edn21[xix] https://www.pbo-dpb.gc.ca/en/epc-estimates--estimations-cpe?epc-cmp--eid=44&epc-cmp--cid=117[xx] https://www.policynote.ca/tax-the-rich/[xxi] https://www.pbo-dpb.gc.ca/en/epc-estimates--estimations-cpe?epc-cmp--eid=43&epc-cmp--cid=68[xxii] https://www.taxfairness.ca/en/news/four-ways-liberals-could-improve-luxury-tax[xxiii] https://www.taxfairness.ca/en/news/how-improve-luxury-goods-tax[xxiv] https://liberal.ca/wp-content/uploads/sites/292/2020/09/New-plan-for-a-strong-middle-class.pdf[xxv] https://www.taxfairness.ca/en/news/explainer-what-stock-option-deduction-loophole[xxvi] https://www.taxfairness.ca/en/resource/report-fair-tax-recovery-plan[xxvii] https://www.pbo-dpb.gc.ca/en/epc-estimates--estimations-cpe?epc-cmp--eid=44&epc-cmp--cid=120[xxviii] https://www.taxfairness.ca/en/news/road-ahead-tax-fairness-how-canadas-parties-can-work-together

 

 

 

Photo: Nabil Saleh