My Thoughts on Each Party's Tax Proposals for the Upcoming Election

Canada is voting for a new federal government on October 21st. This long boring letter will explain each party’s proposals in regards to tax rates and the tax filing system. I will go through the list of parties alphabetically to avoid any perception of bias, although I add in my own opinions on each party’s proposals throughout.

Conservative Party

The Conservative Party has proposed to further complicate our already ridiculously complicated tax system by resurrecting from the dead the Child Fitness Tax Credit, the Child Arts Tax Credit, and the Public Transit Credit.

They are proposing a new Green Home Renovations Tax Credit to promote and encourage green renovations and a new tax credit to eliminate tax paid on parental leave benefits from EI.

While these tax credits will certainly reduce peoples’ tax bills, in my humble opinion, I can’t stand them!

It means you will need to keep all those child programs receipts and public transit passes for six years and the CRA will ask to see them after filing your tax returns.

I do like the idea of making maternity/paternity benefits tax free but the method they are using is inefficient because it involves a tax credit to offset tax deducted from the benefits. Why not just refrain from deducting tax from the benefits in the first place?

You all know I hate tax credits. Although our complicated tax system allows me to earn a living, it makes all our lives more difficult. A simpler way to reduce our tax bills would be to lower the tax rate!

In fact, the Conservative Party has proposed to lower the tax rate on the lowest tax bracket, which is income from about $12k to $47k so that is a welcome simple change to the tax system that I can support.

They have also proposed to increase the ‘age amount’ which is a tax credit for senior citizens.

They have proposed to expand the eligibility for the disability tax credit by reducing the number of hours weekly required to qualify from 14 hours to 10 hours.

They will eliminate the new overly complicated impossible to understand rules the Liberals implemented with regard to small business owners and they have proposed a review of the income tax system to make it easier to comply with for small business owners.

Lastly, they claim they will balance the budget within 5 years. So they will run budget deficits for another 5 years. In my opinion, that is irresponsible and unnecessary.

Green Party

The Green Party platform can be found on their website.

Interestingly, they, like the Conservatives, propose to balance the budget within 5 years. However, they will accomplish this in a very different way than the Conservative Party.

According to their platform, the Green Party will do the following:

Establish a Federal Tax Commission to “analyze the tax system for fairness and accessibility… the last tax commission was in the 1960s, so reform is long overdue…”

That is definitely welcome, as I dream every night of the government undergoing a full review of the tax system to simplify it and make it easier to comply with. Unfortunately, their platform does not say anything about ‘simple and easy’.

Eliminate some tax deductions that only benefit the wealthy, such as the stock option loophole, and increasing the capital gains tax inclusion rate.

End offshore tax dodging by providing more funding to the CRA to go after offshore tax havens.

Impose a 0.2% tax on financial transactions

Eliminate all fossil fuel subsidies including payments and tax write-offs.

Increase the federal general corporate tax rate from 15 to 21% but maintain the current rate for small businesses.

Charge a 5% surtax on commercial bank profits but credit unions, caisses popularizes and co-ops will be exempt.

Propose to prohibit Canadian businesses from deducting the cost of advertising on Facebook and Google

Eliminate the deduction for meals and entertainment

Increase the tax credit for volunteer firefighters and search and rescue volunteers

Here are my comments regarding the above proposals of The Green Party:

I don’t like the idea of increasing the capital gains rate. Sometimes capital gains reflect an increase in inflation, and not an actual real gain. If someone holds an asset for many years, like let’s say 20 or 30 years, and it went up in value, much of that increase in value is inflation. However, if someone held an asset for only one month and then sold it, then that is a real gain which should be taxed as income. So perhaps a better policy would be to distinguish between short term and long term gains, like they do in the U.S. Of course, that makes the tax system even more complicated and causes other problems.

The idea of a 0.2% on financial transactions might have some unintended consequences. For example, does that include every transaction that occurs in someone’s RRSP, RESP and TFSA? Also, the finance industry can simply make sure those transactions happen outside of Canada to avoid the tax.

I think increasing the federal corporate tax rate is very silly at this time considering other countries have been going in the opposite direction.

Prohibiting Canadian businesses from deducting the cost of advertising on Facebook and Google makes zero sense to me. All of my self-employed and small business owner clients often do most of their advertising on Facebook and Google to reach their fellow Canadian customers, so why would this not be a valid business expense? This is a completely illogical and unfair policy and would hurt small business owners tremendously.

I do like the idea of eliminating the ‘meals and entertainment’ deduction. It really causes more problems than it solves and is not really necessary.

Liberal Party

There are only two proposals I like that the Liberals have proposed. They have proposed to increase the basic exemption from the current $12,069 to approximately $15,000. This means that instead of the first $12,069 of income being tax-free, the first $15,000 would be tax free. I would propose to make the basic exemption much higher, perhaps $30,000 or $40,000. But it’s a start.

Secondly, they have proposed to make parental benefits from EI tax-free at source so no tax will be deducted.

They will introduce a speculation tax on non-residents and increase the first time home buyers tax credit.

They have proposed to retrofit 1.5 million homes over five years to make them more energy efficient through the CMHC by giving interest free loans up to $40,000 based on the results of a free energy audit. They are also proposing grants of up to $5,000 to newly built homes that are certified to produce zero net emissions.

They have proposed a 10% luxury tax on vehicles costing more than $100,000.

They plan to increase the Canada Child Benefit.

Lastly, the Liberals will increase the budget deficit to $27.4 billion next year and reduce it to $21 billion by 2023-2024. So they too will run budget deficits for the next five years. What happened to the Liberals of the 1990s that eliminated the deficit in 2 years and ran surpluses? Paul Martin, Jean Chretien, where are you?

NDP

The NDP platform, which can be found on their website, says they will increase the general federal corporate tax rate to 18% which was the rate in 2010.

They will maintain the tax rate for small businesses.

They will increase the top federal tax rate by two points for those earning above $210,000. In Ontario, the combined federal and provincial rate is already 51.97% on income above $210,000, so that means it will be 53.97% and income above $220,000 would be taxed at over 55%.

Why not just make the tax rate 100% and have the government do everything for us??

They also propose to increase the capital gains inclusion rate to 75% from the current 50% and will put a new 15% foreign buyers tax on purchases of homes by foreign corporations, non-citizens and non-residents.

The worst proposal from this party, whom I admire for their honesty, integrity and adherence to their socialist-lite principles, is the wealth tax.

The NDP has proposed a 1% ‘wealth tax’ on those with a net worth of $20 million or more.

What is a wealth tax? Well, unlike an income tax, a wealth tax is not based on how much money you made during the year, but rather it is based on a percentage of your net worth.

In my opinion, this is completely insane and unworkable. How in the world do you calculate net worth? Well most accountants would suggest you calculate the value of a person’s assets and then subtract the value of their liabilities and their debts. Seems simple? Well, if you think income tax is simple, which it’s not, imagine the wealth tax. These people would need to value all their assets and all their liabilities and debts.

What date do you propose to measure the value of a person’s net worth? Is it December 31st? If so, if the wealth tax return and tax payable is due by April 30th, what if there is a drastic change in value of their assets and or liabilities between December 31st and April 30th? For example, if a person’s assets are based on investments in the stock market, the market value on December 31st of those investments may be $1,000,000. However, on April 30th, when the wealth tax must be paid, what if the stock market crashed and the value of those investments is now only $200,000? Should this person still be taxed based on the market value from December 31st?

What if this person owns assets that are hard to value? For example, what if they own a private business? It is often hard to value a privately held family owned business because it does not have shares for sale on the open market. So what should they do? Hire a Chartered Business Valuator every single year to value their business? That could cost several thousand dollars a year or even more. What if they own a ton of real estate? Must they pay a valuator to value all of their real estate each year? That would also cost thousands of dollars.

What if one year a person’s wealth is very high and they have to pay the wealth tax but for whatever reason the year after they lost of a lot of their wealth. Would they be able to file a wealth tax return showing negative wealth and receive a wealth tax refund? See how insanely complicated this could get?

What about the fact that the ultra-wealthy people who this wealth tax would apply to don’t just have wads of liquid cash sitting around? Their wealth is invested in stocks, bonds, GICs, companies, businesses, real estate, and so forth. What if these people don’t have the cash sitting around to pay the wealth tax? Would they be forced to sell some assets in order to pay the tax? What if the only asset is their private family owned business? Do they have to sell their business to pay the wealth tax?

The bottom line is the wealth tax would be a bureaucratic nightmare for both the CRA to administer and the taxpayer and it would result in some very unfair unintended consequences. The idea was not thought through properly and it is likely they did not consult with an accountant before proposing such insanity.

People’s Party

The People’s Party proposes to balance the budget within two years and maintain a balanced budget in subsequent years.

They also propose to simplify the tax system by reducing the number of tax brackets to two. Like the Liberal party, they propose to increase the basic exemption to $15,000. Income between $15,000 and $100,000 would be taxed at 15% and income above $100,000 would be taxed at 25% federally.

They have also proposed to abolish the capital gains tax, lower the general corporate tax rate from 15% to 10% and eliminate corporate welfare and eliminate the carbon tax.

Personally, I like the idea of balanced budgets and a simplified tax system. However, I have not seen anything in their platform about undergoing a massive review of the tax system with the goal of simplifying it.

I am neutral on abolishing the capital gains tax. Instead, they should have proposed to eliminate income tax on employment and self-employment income up to a certain amount, say $50,000 or $75,000. That would be a better policy because capital gains are really only realized by a small percentage of Canadians whereas everyone must work and earn a living.

If I Were Minister of Finance:

Here are my proposals if I were running my own party and running for Minister of Finance:

Abolish every single tax deduction and tax credit

Eliminate income tax on the first $60,000 of income

Conduct a massive comprehensive review of the tax system from top to bottom with the goal of simplifying it such that I would not have a job because no one would require my services anymore; look at other countries such as England, Estonia, Sweden, Finland, Israel that have simpler tax systems to learn from them

Abolish all corporate welfare and subsidies

Increase the exemption for GST/HST from $30,000 to $150,000. This small supplier limit has not been changed since 1991 when the GST was first implemented!