Canadian businesses and wealthy individuals brace for higher taxes as the country kicks off a general election on Sept. 20, with tax equity and income inequality among voters’ top concerns.
Every major party active at the national level has recognized the need to redistribute the tax burden and abolish tax breaks for the rich. Proposals include new wealth taxes for individuals, capital gains taxes, higher taxes for businesses – especially those who had a windfall during the pandemic – and new taxes on digital services.
Their promises are very likely to find a receptive audience ahead of the September 20th vote – 57% of Canadians believe the new coronavirus pandemic has increased income inequality and 62% believe the tax system is unfair, according to survey firm Abacus Data found in a July poll commissioned by progressive and union groups.
Pandemic cost burdens on public finances could also lead to higher tax rates, although anyone who wins the election must be careful not to undo Canada’s young economic recovery, according to David Hogan, partner at Richter LLP.
“If you raise general corporate taxation, I don’t think it makes sense,” said Hogan.
A better approach would be to tailor tax increases to companies that have done well in the pandemic, either through random taxes or better enforcement of existing tax laws, Hogan said.
Companies are also resisting new taxes and are instead demanding a comprehensive tax revision and tax credits in order to increase competitiveness.
“New corporate taxes will not only jeopardize our recoverability, but could also result in thousands of new business closings,” said Patrick Gill, senior director of tax and finance policies for the Canadian Chamber of Commerce.
Taxing the rich
Prime Minister Justin Trudeau, whose Liberal Party leads most polls, has noted his track record of raising taxes on the richest Canadians. Trudeau, who asked Governor General Mary Simon to dissolve parliament on August 15, has not published a re-election program.
“The very first thing we did was raise taxes for the richest 1% so we could lower them for the middle class,” Trudeau said outside Simon’s residence at Rideau Hall.
Trudeau’s most recent budget in April introduced significant new tax measures for large multinational corporations – like extending domestic sales tax to large overseas digital firms like Amazon.com Inc., Netflix Inc., and AirBnb Inc. – increasing the possibility of him continuing the tax according to Tara Benham, partner and national tax director at Grant Thornton LLP.
Amid widespread concerns about wealth inequality, Benham said she expected the next Canadian government to raise the capital gains tax rate from 50% to 75% and reform a tax exemption for profits from primary home sales, both of which would be effective ways to target wealth without affecting too many people.
Trudeau is also campaigning after leaving several proposals for the rich – a luxury tax on expensive goods and a levy on vacant apartments owned by foreigners – that have been incomplete since his last tenure. The government has only recently opened consultations on these proposals.
The New Democrats, currently ranked third in most polls, have proposed sweeping changes to the tax law, including a 1% tax on individuals with assets of more than CAD 10 million ($ 8 million). The party has also promised to raise the capital gains rate to 75% on their platform, raise the corporate income tax rate to 18%, raise the upper marginal tax rate to 35%, and introduce a temporary 15% excess tax on large-scale corporate profits during the windfall profits Pandemic.
While the popularity of the left-wing party’s proposals remains to be seen, they will, in part, determine whether Trudeau will get his coveted majority of seats in parliament or remain with a less powerful majority – forcing him to negotiate with other parties to pass laws , Elliott Hughes, senior advisor at Summa Strategies, a government relations firm, said.
“The difference between a liberal majority and a liberal minority is how strong the NDP is in this election,” said Hughes, a former advisor to former Treasury Secretary Bill Morneau.
Stronger enforcement
The runner-up Conservative Party promises significant tax breaks to individuals and businesses in a platform released Monday, although the document also includes populist language more akin to proposals from the left.
Chairman Erin O’Toole would increase the Canada Revenue Agency’s budget by $ 750 million annually to “fund stronger tax enforcement for multinational corporations, corporate taxation, international taxation and other tax evasion,” it said Election platform.
The Conservatives would also target “wealthy tax evaders” by reforming a tax authority program targeting high net worth individuals and introducing a new 3% digital services tax on gross sales in Canada for non-corporation foreign companies.
O’Toole is the only party leader who has so far promised a corporate tax review.
“Canadians can’t keep up with the complexity and can’t afford teams of accountants and lawyers to help them navigate the system,” his platform says.