Canadian tax system in need of overhaul: report

Canadian tax system in need of overhaul: report

A report by the Chartered Professional Accountants of Canada (CPAC) has slammed the country's tax system, describing it as complex, outdated, lacking in trust and having a negative impact on individual citizens and on Canada's competitiveness in the wider world.

Upon publication in December, the CPAC urged the Canadian government to undertake a root-and-branch reform of the system, saying: "It's time to move the conversation beyond the need for a comprehensive review of the country's tax system to how to conduct such an undertaking."

The report, Canada's Tax System: What's so Wrong and Why it Matters, gauged Canada's international tax competitiveness, the encouragement of business growth and innovation, the effectiveness of tax expenditures along with personal tax compliance, and reached four overall conclusions:

  • Canada's tax system does not align with international trends nor does enough to promote global competitiveness.
  • Canada's tax system needs to do more to help businesses grow and innovate.
  • Questions remain about whether or not Canada's tax expenditures are achieving intended goals at the right cost, but it is clear they do make the system more complex.
  • Canada's personal tax system discourages compliance in many cases, and there may be better ways to deliver social benefits more efficiently and effectively.

The latter finding, that there are areas where the system falls short on compliance, has been of particular concern to IFAs and tax professionals in Canada. The report claims: "Many Canadians have lost trust in the tax system, which may contribute to reduced compliance and increased underground economic activity."

Earlier in 2018 the Office of the Auditor General of Canada criticising "inconsistencies" in the Canada Revenue Agency's compliance systems, and presented its findings to parliament.

Furthermore, the CPAC's report argues that Canada is falling further behind the United States, which has recently implemented a series of tax reforms. President Trump's Tax Cuts and Jobs Act 2017 reduced the corporate tax rate, and the report makes the case that this "reduces Canada's relative appeal for more mobile investments and increases exposure to the shifting of profits to the US."

Author spotlight

Christopher Copper-Ind

Christopher Copper-Ind is editor-in-chief of International Investment. Before this, he was editorial director of The Business Year, from 2014 to 2017.