December 2018

Chartered Professional Accountants of Canada (CPA Canada) has long criticized and called for an in depth review of the Canadian tax system to ensure competitiveness and fairness.  In their new report, Canada's Tax System: What's so Wrong and Why it Matters, CPA Canada criticized the current Canadian tax system for being ‘outdated and overly complex’ creating problems for people and businesses alike.

This criticism first emerged earlier in the year after the Auditor General of Canada released an audit report on the Canada Revenue Agency (CRA) slamming the agency for being ‘unfair’ on taxpayers. The two reports share similar findings.

Domestic Issues

Canada's Tax System: What's so Wrong and Why it Matters, details the ways in which the tax system creates problems for people and businesses. Many of the findings are worrying for many Canadians. For instance, tax complexity makes it difficult for low-income earners and others in vulnerable situations to access income support in the current tax system.  

Similarly, the Auditor General’s report also found the CRA made it more difficult for those seeking income support. Citing a specific example this report found, the CRA will automatically disallow expenses as an eligible income tax deduction simply if the taxpayer does not provide a receipt within 90 days.

Small businesses are also struggling in the tax system according to the report on Canada's tax system.  The report found tax compliance for this group is hard to achieve making it difficult for them to be competitive and grow. This puts the integrity of the whole tax system at risk, argues CPA Canada.  

Likewise the Auditor General’s report found that the tax system, specifically the actions of the CRA, is unfair towards smaller businesses, providing more favorable treatment for “large international businesses and taxpayers with offshore assets or transactions”.  The report argues most tax payers with regular Canadian employment income often find themselves being asked for information more quickly with less time to respond than international or large businesses.

International Issues

Apart from domestic issues surrounding fairness, growth and competitiveness, the report also cites issues internationally. Canada does not align with international tax norms and does not promote enough global competitiveness argues CPA Canada. Where other countries have reduced their corporate taxes improving their tax competitiveness, Canada has not, reducing tax advantages as a result. Due to this the report found Canada to be overly reliant on personal income tax, damaging the economy.

Recommendations

CPA Canada also concludes that the country’s current tax system does not promote global competitiveness and does not so enough to help businesses grow. Due to these reasons, CPA Canada finds that many Canadians have lost trust in the tax system discouraging compliance.

In a time of inequality, a slowing labor market, and as trading partners are mixing up their tax systems, a change-up of the current tax system is more important than ever. “Canada needs to ensure we continue to create jobs, attract investment and remain competitive” the report argues.

 The CPA findings have led them to determine that the need to fix the existing Canadian tax system is imperative and urgent. The organization feels the only way this can be realistically achieved is through a comprehensive review of the tax system, a sentiment they have expressed many times before. Until a review has been conducted, CPA Canada argues, “Canadians and their businesses will continue to shoulder unnecessary burdens and diminishing competitive prospects”.

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