Why it’s time to tackle the Income Tax Act

With Canadians in the throes of an election campaign and the income tax filing deadline approaching, it’s no surprise that the party leaders are talking money.

But while Liberal leader Mark Carney and Conservative leader Pierre Poilievre tout their respective tax cut promises to voters on the campaign trail, Heather Evans, CEO of the Canadian Tax Foundation, says politicians should tackle taxes differently.

Instead of receiving targeted tax cuts, Canadians would be far better off if a government promised significant tax reforms.

“We have a situation right now where, frankly, the complexity in the Income Tax Act, especially given Canada's challenging economic performance, suggests that tax reform is overdue as a way of perhaps enhancing productivity,” she tells Alison Crawford on the third episode of Modern Law: Verdicts and Voices.

“Tackling income tax reform is not something that typically has much of an upside for politicians. It’s much easier to just offer goodies to the voters. But I think the time has come when this really has become very urgent.”

Evans says our bloated tax system is littered with fiscal pollution, or “bad taxes,” which suffocates Canada's competitiveness and productivity.

“It's the tendency to use the income tax system for niche purposes, and it's really only accelerated over the last couple of decades,” she says.

“We see targeted measures at things like the housing crisis, share buyback taxes, luxury taxes, niche measures to support certain industries or certain taxpayers, [like] people who ride transit or have children in sports or volunteer firefighters.”

While she views these types of fiscal pollution as “irritants,” Evans says a more serious issue is the fundamental complexity of core parts of the Income Tax Act, whether it's the taxation of private companies, owner-managed businesses, or, at the larger scale, multinational corporations.

In its bilingual form, the Act is a whopping 3,000 pages long, organized into two volumes, and printed “in very small font.”

Evans thinks it would be useful for whichever government takes office at the end of April to commit to wholesale reform.

“We have a situation where the risk from south of the border presents us with a challenge, obviously, but also an opportunity to step back and look at some of the issues that have impeded Canada's productivity and economic performance for many years.”

Beyond the tax system, that includes regulations, competition laws, and interprovincial barriers.

Frequent reform recommendations include modifying the tax mix so that there is less reliance on income tax, whether personal or corporate, and more on value-added taxes.

“Tax is part of the equation,” Evans says.

“It's not a magic bullet, but I think there's generally a consensus that the degree of complexity in our current Income Tax Act is an impediment in a few areas, so the cost of compliance has a negative impact on productivity.”

Tune in to the podcast to hear more about how the HST could be a factor in tax reform and how a review of the system would help attract investment to Canada.  

Also in this episode, international law experts Gib Van Ert and Miriam Cohen evaluate the current state of the international rule of law. And in our feature about landmark Supreme Court decisions, we examine at access to abortion with University of Calgary law professor Jennifer Koshan.