Canada's tax system is outdated and overly complex, which is hurting the country's competitiveness and costing individual Canadians money, according to a new report by Chartered Professional Accountants of Canada (CPA Canada).
Canada's Tax System: What's so Wrong and Why it Matters reveals the problems our system creates for people and businesses, citing research and real case studies from the tax professionals who help taxpayers comply with Canada's complex tax laws.
The report assesses Canada's international tax competitiveness, the encouragement of business growth and innovation, the effectiveness of tax expenditures along with personal tax compliance and the delivery of social benefits. It concludes:
• 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 findings in the report are troubling for all Canadians. Tax complexity, for example, makes it difficult for lower-income and other vulnerable Canadians to access much-needed income supports through the tax system. Tax compliance is becoming exceedingly difficult for Canadians, especially small business owners and their advisers, putting the integrity of the tax system in jeopardy.
CPA Canada has long called for a comprehensive review of our country's tax system to eliminate inefficiencies, improve fairness and ensure economic competitiveness. The last comprehensive review was carried out in the 1960s and the business landscape and society have changed significantly since then.
"The report makes clear that 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," stresses Bruce Ball, vice-president, tax, with CPA Canada. "We need a tax system that helps create jobs, attracts investment and keeps the Canadian economy competitive. Unfortunately, the current system is falling short on those vital measures.
"While the new measures introduced in the Fall Economic Statement to help accelerate business investment have been welcomed by business groups, these measures are temporary and do not reduce the need for a more comprehensive review of the entire tax system. A sound tax system is essential to Canada's competitiveness."
There is a groundswell of support for a tax review – from other national organizations, leading think-tanks, parliamentary committees, the Advisory Council on Economic Growth and international bodies such as Organisation for Economic Co-operation and Development and the International Monetary Fund.
This report follows in the first in CPA Canada's series - International Trends in Tax Reform: Canada is Losing Ground – which compares the situation in Canada with that of our global competitors and finds that our country is falling behind, especially in the wake of tax reform in the U.S.