15th November 2016

The Senate finance committee seeks to add an amendment to Bill C-2 that if enacted would make substantial changes to Canada’s federal tax brackets. Conservatives control a majority within the committee including the committee’s chair, Larry Smith of Quebec, who proposed the amendment. After heated debate, the motion to move the amendment to a full Senate vote passed 9-3.

The amendment would give Canadians making between $45,282 and $52,999 annually a larger tax break. The changes would have the effect of raising taxes by $1.7 billion in an attempt to address a funding shortage in the original plan.

Although it is not common for the Senate to amend a government bill, especially a tax bill, if the Senate passes the amendments, the bill goes to the House of Commons for a vote there. The Senate can’t initiate legislation that brings about new taxes or new spending which is part of the reason the committee’s debate grew heated.

The original bill, Bill C-2, applies the tax changes Justin Trudeau’s Liberal government made which came into effect on January 1. The original reduces the second marginal tax rate from 22 percent to 20.5 percent on yearly earnings between $45,282 and $90,563 and creates a new tax bracket with a tax rate of 33 percent on income over $200,000. The government can apply tax changes after voted on in principle in the House of Commons without approval from the Senate.

According to Mr Smith, the government’s changes aren’t revenue neutral and higher-income citizens are set to receive weighted benefits from them. He claims his committee’s changes benefit more of the middle class and would achieve income neutrality. 

The committee’s changes would make a new, reduced tax rate of 16.5 on income greater than $45, 282, but less than $52,999. It would retain the 20.5 percent rate on income more than $53,000, but less than $90,563. According to documentation provided by Mr Smith’s office, ‘a transition as an individual moves to the third bracket for income above $90,563 which would make the tax plan revenue neutral.

If Mr Smith and his fellow Conservative committee members are to have success, it needs to come soon. The Senate will soon welcome a new wave of Senators appointed by the prime minister. Mr Tredeau’s appointments will outnumber the Conservatives 44 to 40, although committees will not be changed to reflect this majority. Thus the Conservatives will continue to have a majority in committees.

Most of the existing Independents on the finance committee, who represent a minority, and those throughout the Senate, expressed strong disapproval to Mr. Smith’s amendment. Some Independent Senators argued that the committee’s plan would discourage Canadians from earning more for fear of triggering the transition clause. 

Canada’s Finance Minister Bill Morneau called the move ‘surprising’ because the liberal party had promise changes to the bill in the election campaign, but didn’t say much more about the issue.