Kim Moody: It is time for a complete tax assessment, not only one to look good

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Adam Smith, the Scottish economist and thinker, laid out his ideas on what the 4 fundamental tenets of an excellent taxation system are in The Wealth of Nations, his 1776 landmark writing, as follows:

  1. Fairness: the taxation of individuals needs to be proportional to their means to pay;
  2. Certainty: the system needs to be clear and clear;
  3. Comfort: the timing and system of cost needs to be handy for taxpayers;
  4. Financial system: the prices to manage and gather taxes needs to be minimized.

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In my opinion, Canada has work to do to get again to adhering to the above 4 fundamental tenets. Accordingly, I’ve been a loud advocate for complete tax assessment and reform for way over a dozen years. I’m actually not alone on this name. For instance, CPA Canada has additionally referred to as for a assessment. It’s nicely overdue.

Nevertheless, I’m a purist. I imagine the federal government ought to convene a well-qualified committee of consultants (that would come with teachers, economists, practitioners and public-policy consultants, all of whom wouldn’t embrace any vested pursuits) who would have an open guide to assessment our present taxation system and suggest change.

The final time such a complete assessment occurred was in 1962, when prime minister John Diefenbaker convened the Royal Fee on Taxation. It launched its voluminous report and suggestions in 1966. Such suggestions had been vigorously debated, however, finally, had been the impetus for vital revenue tax reform efficient Jan. 1, 1972.

A number of the fee’s suggestions had been applied, however tons weren’t. As a facet word, Canada has had restricted evaluations of sure features of its taxation system since 1972, however nothing complete.

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I’m a tax assessment purist as a result of I imagine the assessment needs to be as free from political strain as potential. However in right this moment’s day and age, such a view is admittedly naïve. It doesn’t matter what your political stripes are, it’s uncertain that “your” political celebration would conform to an open-ended assessment of the taxation system. Why? As a result of it’s very dangerous politically. Who is aware of what the assessment panel would finally suggest? Wouldn’t it align with the politics of the federal government of the day? Would the final word report trigger political hurt to the governing celebration?

The solutions to those questions will not be identified, and so in right this moment’s surroundings, what’s finally good for the inhabitants as an entire usually takes a again seat to the dangers of whether or not or not the governing celebration would get re-elected. I acknowledge that. However there is no such thing as a doubt that Canada wants a complete tax assessment. I’d be proud of even a limited-time assessment since there’s a lot that should change.

Given the above, I’m usually requested what I might change if I had my method (which, in fact, I don’t). To reply such a query would possibly pre-suppose the aim of a complete assessment, so I’m usually immune to reply. In different phrases, if a complete assessment was to be accomplished, all events on the desk ought to have an open thoughts, be ready to have a look at all sides of a problem and, as beforehand talked about, not have vested pursuits.

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Nonetheless, listed here are some apparent points that I might hope could be on the desk:

The function of non-public revenue tax in total authorities revenues. Ought to or not it’s the most important income driver?

For private revenue tax, why is household taxation not the first taxing unit as in comparison with the person? Wouldn’t this go an extended solution to serving to to resolve a number of the current Earnings Tax Act’s complexity?

What charges of non-public revenue tax would assist enhance Canada’s productiveness and appeal to one of the best and the brightest? (As a facet word, the 1966 Report of the Royal Fee on Taxation strongly really helpful that the prime private tax charge shouldn’t exceed 50 per cent … this isn’t the case in lots of provinces throughout Canada the place the top-end charges strategy 54 per cent).

What ought to the function of consumption tax (such because the GST / HST) be? Ought to or not it’s elevated in favour of decreased private revenue tax charges / revenues?

How ought to capital positive factors be taxed?

Ought to the principal residence exemption be a limiteless quantity? Or ought to or not it’s restricted?

Is there an excellent tax coverage purpose to have the choice minimal tax?

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Ought to Canada have an property tax like that of the USA? Canada did have an property tax, however it was abolished efficient Jan. 1, 1972.

Ought to there be a greater effort to attempt to coordinate the provincial and federal tax legal guidelines higher? In that case, how precisely might that be achieved?

Right now’s Earnings Tax Act is meaningless, even to tax professionals. How might this be dramatically simplified?

How might Canada’s revenue tax administration be drastically simplified? What function does elevated and higher know-how play in such a simplification whereas very fastidiously safeguarding privateness?

Regardless of the Group for Financial Co-operation and Growth’s efforts to alter taxation of worldwide companies that Canada is following and implementing, might this nation one way or the other make its worldwide taxation system less complicated? And fairer?

What function does reporting info / disclosure and penalties play into the longer term? Right now’s system is turning into extra pushed to intrusive info disclosure with a draconian carrot and vital “stick” strategy occurring.

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Associated Tales

The above quick listing could be very incomplete and is just the plain … there’s a ton extra.

Adam Smith was onto one thing greater than 200 years in the past. It’s time for Canada to modernize its taxation system and get nearer to the core ideas laid out by him.

Kim Moody, FCPA, FCA, TEP, is the founding father of Moodys Tax/Moodys Personal Consumer, a former chair of the Canadian Tax Basis, former chair of the Society of Property Practitioners (Canada) and has held many different management positions within the Canadian tax group. He may be reached at and his LinkedIn profile is

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