Promises, promises: Where political parties stand on tax breaks, incentives
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Tuesday, October 15, 2019| The Lawyer's Daily
Given that Canada is in the home stretch of a federal election campaign, we’ve entered one of the more entertaining portions of federal politics — the parties are lining up to make impressive (and often untenable) promises to voters and the area of tax is, as usual, front and centre.
Below is a summary of the announcements to date by the major parties.
These summaries are intended to set out the major announcements of the parties; the parties have not expanded on some of the promises in great detail.
Or, put another way, how the parties will realistically pay for the tax promises (or why we can’t afford them) will be discussed, I expect, in approximately three to four years’ time.
Liberal Party
The major promise made by the current government is to raise the basic exemption level to $15,000 over four years (by 2023), i.e. the first $15,000 of income will be tax-free. However, this increase in the exemption amount is limited to taxpayers earning less than $147,667 per year. Starting at that income level, the increased exemption level would be clawed back and eliminated once a taxpayer reaches approximately $210,000 of income for a year. At that point, their basic exemption would remain at the current level.
As previously announced, the Liberals will also attempt to combat housing speculation, which is thought to have played a significant role in the ever-rising housing prices across the country, by imposing a one per cent tax on vacant Canadian properties owned by non-Canadians who are also non-residents of Canada.
From a corporate tax perspective, the Liberals have taken aim at “international tech giants,” i.e. Netflix, etc., with a stated intent of ensuring that such corporations pay corporate tax on the revenue they generate in Canada. This three per cent tax would only apply to businesses with worldwide revenues of at least $1 billion and Canadian revenues of more than $40 million. The Liberals have also proposed cutting in half the corporate taxes paid by businesses that develop technologies or manufacture products that produce zero emissions.
Among the other promises announced by the Liberal government:
Conservative Party
The Conservatives’ platform involves both new promises and a repeal of a number of current Liberal government policies/programs.
The Conservatives have promised to reduce the tax rate of the lowest marginal income bracket from 15 per cent to 13.75 per cent over four years. They have also promised to boost the federal contribution to Registered Education Savings Plans up to 30 per cent from 20 per cent, for every dollar added to the program by a family, up to $2,500 per year.
In terms of some of the major tax changes brought in by the Liberal government during its current term, the Conservatives have proposed repealing the changes that restrict access to the small business deduction for businesses with passive income of greater than $50,000 per year. They have also proposed restoring full access to refundable taxes on the payment by corporations of eligible dividends (the Liberals recently created a second pool of refundable taxes, to distinguish between eligible and non-eligible types).
The Conservatives have not vowed to repeal the tax on split income (TOSI), the somewhat controversial (at least to tax practitioners) and certainly very complicated rules introduced by the Liberals. TOSI aims to eliminate any tax benefit of income splitting among family members, where the members have not made a sufficient contribution to the business owned by the family. One exception already in place is where income is paid to a spouse who has reached the age of 65, if that income would not be otherwise be subject to TOSI in the hands of the spouse who is involved in the business. The Conservatives have proposed extending that exemption from TOSI to all spouses or common law partners of small business owners (again, if the income would otherwise not be subject to TOSI in the hands of the business owner).
With respect to the environment, the Conservatives have promised to repeal the federal carbon tax but establish a green patent credit, whereby corporate income derived from green technology developed and patented in Canada would be taxed at a federal rate of five per cent (as opposed to 15 per cent). Additionally, a refundable tax credit on “green” home improvements has been promised for expenses of over $1,000 to a maximum of $20,000.
The Conservatives have also made a number of “boutique” promises, including some that bring back previous credits that have been revoked by the Liberals:
New Democratic Party
The NDP has proposed a number of major revisions to personal and corporate taxes.
It would bring in a “super-wealth tax” that applies a one per cent tax on individuals with wealth greater than $20 million annually. It would raise the top marginal tax rate for individuals, which would apply to income over $210,000, from 33 per cent to 35 per cent.
The NDP has also proposed increasing the federal portion of tax on corporations to 18 per cent. It has not proposed an increase to the small business tax rate.
In addition to the above-noted tax increases, the NDP has also proposed increasing the capital gains inclusion rate. Currently, 50 per cent of any capital gain is subject to tax; the NDP would increase that inclusion rate to 75 per cent.
In terms of its environmental policy, the NDP would continue with the carbon pricing regime but would look to reduce or eliminate income tax benefits currently enjoyed by big polluters.
With respect to its national housing strategy, the NDP has proposed, for either foreign corporations or individuals who are neither citizens nor permanent residents, a 15 per cent foreign buyers tax on purchases of residential property.
Other tax-related promises made by the NDP include:
This is part one of a two-part series. In part two, I’ll summarize the tax announcements of the other three major parties.
Given that Canada is in the home stretch of a federal election campaign, we’ve entered one of the more entertaining portions of federal politics — the parties are lining up to make impressive (and often untenable) promises to voters and the area of tax is, as usual, front and centre.
Below is a summary of the announcements to date by the major parties.
These summaries are intended to set out the major announcements of the parties; the parties have not expanded on some of the promises in great detail.
Or, put another way, how the parties will realistically pay for the tax promises (or why we can’t afford them) will be discussed, I expect, in approximately three to four years’ time.
Liberal Party
The major promise made by the current government is to raise the basic exemption level to $15,000 over four years (by 2023), i.e. the first $15,000 of income will be tax-free. However, this increase in the exemption amount is limited to taxpayers earning less than $147,667 per year. Starting at that income level, the increased exemption level would be clawed back and eliminated once a taxpayer reaches approximately $210,000 of income for a year. At that point, their basic exemption would remain at the current level.
As previously announced, the Liberals will also attempt to combat housing speculation, which is thought to have played a significant role in the ever-rising housing prices across the country, by imposing a one per cent tax on vacant Canadian properties owned by non-Canadians who are also non-residents of Canada.
From a corporate tax perspective, the Liberals have taken aim at “international tech giants,” i.e. Netflix, etc., with a stated intent of ensuring that such corporations pay corporate tax on the revenue they generate in Canada. This three per cent tax would only apply to businesses with worldwide revenues of at least $1 billion and Canadian revenues of more than $40 million. The Liberals have also proposed cutting in half the corporate taxes paid by businesses that develop technologies or manufacture products that produce zero emissions.
Among the other promises announced by the Liberal government:
- The exemption of parental and maternity leave employment insurance benefits from tax;
- The cap of employee stock option deductions for high-income earners in large and mature companies at $200,000 annually (this was introduced in the 2019 budget);
- The imposition of a 10 per cent sales tax on luxury goods, specifically personal cars, boats and aircraft valued at $100,000 or more; and
- The increase, by an extra 10 per cent, of Old Age Security payments for seniors once they turn 75 and the increase, by 25 per cent, of the Canada Pension Plan survivor’s benefit.
Conservative Party
The Conservatives’ platform involves both new promises and a repeal of a number of current Liberal government policies/programs.
The Conservatives have promised to reduce the tax rate of the lowest marginal income bracket from 15 per cent to 13.75 per cent over four years. They have also promised to boost the federal contribution to Registered Education Savings Plans up to 30 per cent from 20 per cent, for every dollar added to the program by a family, up to $2,500 per year.
In terms of some of the major tax changes brought in by the Liberal government during its current term, the Conservatives have proposed repealing the changes that restrict access to the small business deduction for businesses with passive income of greater than $50,000 per year. They have also proposed restoring full access to refundable taxes on the payment by corporations of eligible dividends (the Liberals recently created a second pool of refundable taxes, to distinguish between eligible and non-eligible types).
The Conservatives have not vowed to repeal the tax on split income (TOSI), the somewhat controversial (at least to tax practitioners) and certainly very complicated rules introduced by the Liberals. TOSI aims to eliminate any tax benefit of income splitting among family members, where the members have not made a sufficient contribution to the business owned by the family. One exception already in place is where income is paid to a spouse who has reached the age of 65, if that income would not be otherwise be subject to TOSI in the hands of the spouse who is involved in the business. The Conservatives have proposed extending that exemption from TOSI to all spouses or common law partners of small business owners (again, if the income would otherwise not be subject to TOSI in the hands of the business owner).
With respect to the environment, the Conservatives have promised to repeal the federal carbon tax but establish a green patent credit, whereby corporate income derived from green technology developed and patented in Canada would be taxed at a federal rate of five per cent (as opposed to 15 per cent). Additionally, a refundable tax credit on “green” home improvements has been promised for expenses of over $1,000 to a maximum of $20,000.
The Conservatives have also made a number of “boutique” promises, including some that bring back previous credits that have been revoked by the Liberals:
- The reintroduction of the children’s fitness tax credit, which would allow a claim by parents of up to $1,000 per child per year for expenses related to sports and fitness activities. The credit would be refundable, which means that if a taxpayer’s total tax payable is below zero, that person would receive a refund. The Conservatives have further set out that parents of children with disabilities would be entitled to claim an additional $500 per child, per year;
- The reintroduction of the children’s arts and learning tax credit, which would allow parents to claim up to $500 per child for expenses related to arts and educational activities. Again, the credit would be refundable, and the Conservatives have set out for this credit as well that parents of children with disabilities would be entitled to claim an additional $500 per child, per year;
- The reintroduction of a 15 per cent tax credit for public transit passes;
- An increase to the Age Tax Credit, which is for taxpayers over the age of 65 who meet certain requirements, by $1,000;
- Remove federal income tax from parental and maternity leave employment insurance benefits by providing a 15 per cent tax credit for any income under the programs;
- Eliminate the federal portion of GST/HST from home heating and energy bills (announced back in March); and
- Establish a single tax return for Quebec residents (to be administered by the Quebec government).
New Democratic Party
The NDP has proposed a number of major revisions to personal and corporate taxes.
It would bring in a “super-wealth tax” that applies a one per cent tax on individuals with wealth greater than $20 million annually. It would raise the top marginal tax rate for individuals, which would apply to income over $210,000, from 33 per cent to 35 per cent.
The NDP has also proposed increasing the federal portion of tax on corporations to 18 per cent. It has not proposed an increase to the small business tax rate.
In addition to the above-noted tax increases, the NDP has also proposed increasing the capital gains inclusion rate. Currently, 50 per cent of any capital gain is subject to tax; the NDP would increase that inclusion rate to 75 per cent.
In terms of its environmental policy, the NDP would continue with the carbon pricing regime but would look to reduce or eliminate income tax benefits currently enjoyed by big polluters.
With respect to its national housing strategy, the NDP has proposed, for either foreign corporations or individuals who are neither citizens nor permanent residents, a 15 per cent foreign buyers tax on purchases of residential property.
Other tax-related promises made by the NDP include:
- Closing “stock option loopholes” and cracking down on shell companies operating in tax havens;
- Taxing web giants (such as Google and Netflix) on Canadian income and cracking down on tax loopholes that have been used by these corporations on advertising purchases. The NDP has also proposed ensuring that these corporations charge GST/HST;
- Putting in place income tax averaging for artists and cultural workers;
- Increasing the Home Buyers’ Tax Credit to $1,500;
- Expanding the Volunteer Firefighter’s Tax Credit;
- Eliminating the federal portion of the GST/HST on zero-emissions vehicles purchases (and providing a $5,000 incentive for purchases);
- Making the Canada caregiver credit refundable; and
- Introducing a tax credit for graduates to work in certain designated rural and northern communities.
This is part one of a two-part series. In part two, I’ll summarize the tax announcements of the other three major parties.
