Tuesday, March 19, 2019
OTTAWA – Canadians for Tax Fairness is encouraged the federal government is finally committing to limit the stock option deduction, one of Canada’s most regressive tax loopholes, but the budget misses out on other opportunities to tackle tax dodging.
“The Liberals promised to limit the stock option tax loophole in each of the last two elections, so we’re glad commitments have finally made it into a budget,” said Toby Sanger, executive director of Canadians for Tax Fairness. “But their plans will still allow many to pay lower taxes on their income from stock options than ordinary Canadians pay on their employment income.”
The 2019 budget also includes measures to crack down on tax evasion and money laundering, but these fail to address larger problems of tax dodging by corporations and wealthy individuals. The budget only identifies $700 million in savings from these initiatives over the next five years, while Canadians for Tax Fairness has identified over $20 billion in annual revenues foregone from a few tax loopholes.
“We’re also disappointed not to see any mention of a digital tax on foreign corporations, which would not only provide revenue for federal and provincial governments, but help Canadian media and creators compete on an even level with online giants such as Facebook and Netflix,” Sanger said.
Investments in areas such as additional resources for CRA to investigate tax evasion and money-laundering through real estate are positive steps, as Canada has notoriously weak corporate transparency rules, but we also need an open public registry of the beneficial owners of companies, trusts and real estate.
“While we welcome the commitments in this budget, we hope to see much bolder action in political platforms as we head into the election.”
Contact: Toby Sanger, Executive Director | firstname.lastname@example.org | 613-720-6955
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Tax Fairness Summary and Commentary on Federal Budget 2019 Measures
The Liberals’ 2019 Budget is very much a pre-election budget that scatters money in a lot of different politically-astute directions, but without taking tougher measures to close major tax loopholes or hike taxes on top incomes and corporations necessary to reduce inequalities and fund new programs. We hope election platforms will include more ambitious commitments.
Taxation measures included in Budget 2019 include:
A commitment to limit the use of the stock option deduction regime and align it with tax treatment in the United States for employees of large mature firms. More details will be announced before the summer of 2019, but the government plans to cap the amount available for this tax break to $200,000 annually on the grant value of stock options for each individual in a large long-established mature firm. Limitations won’t apply to start-ups and early stage firms. This commitment is a dilution from Liberal platform promises in both the 2011 and 2015 election campaigns. By not including these specific measures in the budget, the changes won’t be included in the budget omnibus bill and therefore wouldn’t take effect before the election, so we can treat this as another Liberal election commitment—for the third time. But including it in a budget marks some progress. C4TF continues to advocate for a full closure of this loophole to ensure stock option income is taxed on the same basis as employment income. Finance Canada estimates that this tax break costs the federal government $740 million annually.
Tightening a few smaller tax loopholes that wealthy individuals can use to convert ordinary income into capital gains income, thereby benefitting from the lower tax rates that apply to capital gains income. C4TF also advocates for closing the $15-billion annual capital gains tax expenditure. If capital gains income were taxed at the same rate as employment income, there wouldn’t be the need to include all these measures to restrict abuse of it.
Additional funding to the CRA of $250 million over five years, including:
- $151 million over five years to hire additional auditors to target tax evasion associated with cryptocurrencies and the digital economy, extending programs to combat offshore tax evasion
- $51 million to the CRA and Statistics Canada over five years to target tax evasion and financial crime using real estate, and
- $50 million over five years to make telephone support line permanent and to speed up adjustments to tax files for individual taxpayers.
- $4 million over two years to increase awareness of and provide advance payment of the Canada Workers Benefit to workers who need it.
These are positive steps but we need more ambitious measures to combat tax evasion. C4TF has advocated for the CRA to be more proactive to ensure that all Canadians receive the tax benefits they are entitled to. We propose considering the system used in Norway and other countries where the tax agency sends out pre-filled tax forms to all individuals who want them.
Additional funding of $161 million over five years for the RCMP and FINTRAC to fight money-laundering and terrorist financing, legislation to require federally-registered corporations to make their beneficial ownership information available to tax authorities and law enforcement, and tighter laws to crack down on money laundering and terrorist financing. C4TF, Transparency International and others are calling for the creation of a public and accessible national registry of the beneficial owners of corporations, trusts and real estate, as is available in other countries. Canada has the weakest corporate transparency rules in the G20, which makes us an international haven for money laundering and shell corporations.
A 25% refundable labour tax credit for salaries and wages paid to eligible newsroom employees of “Qualified Canadian Journalism Organizations” (QCJOs) along with a 15% income tax credit of up to $500 for eligible digital news subscriptions. The budget also proposes to make qualified news organizations eligible for charitable organization status. While these measures, at a cost of almost $600 million over five years, should be welcomed by the media industry, the federal government must take steps to eliminate the tax preferences it provides to large foreign digital giants, advertisers, news aggregators, and other foreign e-commerce firms including Google and Facebook.
The Budget includes a number of other, mostly minor, positive tax measures. These include:
- A refundable Canada Training Tax Credit worth $250 a year for individuals aged 25-64 and income between $10,000 and $150,000 annually. These funds can be used to cover half the cost of training fees at universities, colleges and accredited occupational skills training institutes.
- An increase in the withdrawal limit under the Home Buyers Plan to $35,000
- Tax incentives for businesses to purchase zero-emission electric or fuel cell vehicles, along with a purchase incentive of up to $5,000 for individuals to buy these types of vehicles, with a purchase price of less than $45,000.
- Expansion of eligibility to the Canada Workers Benefit as a single parent to kinship care providers.
- Removing the GST/HST from human in vitro eggs and embryos for fertility treatments, just as the GST/HST doesn’t apply to human sperm – a subtle example of the many ways in which our tax system has discriminated against women.
Budget 2019 includes a broad range of spending and a few tax fairness measures. While these steps are welcomed, we are looking forward to more ambitious tax fairness measures to reduce inequalities and finance important social programs including national childcare and pharmacare programs.