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Stay The Course And Finally Close These Unfair Tax Loopholes

With the number of people calling themselves corporations tripling between 2001 and 2014, the time to act is now.
Prime Minister Justin Trudeau, left, and Finance Minister Bill Morneau in Ottawa, March 22, 2016.
Chris Wattie / Reuters
Prime Minister Justin Trudeau, left, and Finance Minister Bill Morneau in Ottawa, March 22, 2016.

Everyone should pay their fair share of taxes.

For most Canadians, that much is obvious.

While few of us might say we actually enjoy paying taxes, we do generally recognize that we all have a responsibility to pay our fair share to live in a civilized society.

The education we desire for our children, the quality health care we cherish for all our people and even the roads we drive on all rely on each of us paying the taxes we owe to keep these things and much more running.

It is not only unfair — it's galling.

When some people are able to game the system to take advantage of a loophole to avoid paying their fair share, however, and when those people happen to be among the most prosperous in our society, it is not only unfair — it's galling.

The only reasonable thing to do when faced with such inequity is to close the loophole, and that's what the federal government is trying to do.

When someone declares themselves to be a corporation, they can reduce their taxesby sprinkling their income among family members, shielding investments from taxes within their personal corporations, and convert some of their income to capital gains, which are taxed at a lower rate. The government proposed this summer to close these loopholes.

It should be pointed out that these tax dodges are simply unavailable to the average working person.

Getty Images/iStockphoto

First off, you must be self-employed to be allowed to call yourself a corporation. For instance, many doctors, lawyers and consultants, though certainly not all, are able to take advantage of the loopholes — and have been the most vocal about closing them. If you draw a salary or a wage from someone else, however, you simply are not eligible.

Secondly, these tax avoidance plans, as they are called, offer no real benefit until you've exhausted the other more widely used plans available to all of us, such as Registered Retirement Savings Plans (RRSPs) and Tax-Frees Savings Accounts (TFSAs).

You need to make a lot of money to top out those two plans, which is consistent with Prime Minister Justin Trudeau saying the changes are aimed at those making $150,000 or more a year.

Indeed, 60 per cent of the top 0.1 per cent of income earners in Canada are taking advantage of this tax loophole, compared with just five per cent of middle income families. That means that 60 per cent of the highest income earners in Canada can "opt out" of our progressive tax system, while the rest of us pay our fair share.

With the number of people calling themselves corporations tripling from 600,000 to 1.8 million between 2001 and 2014, the time to act is now.

Conservative Leader Andrew Scheer.
Chris Wattie / Reuters
Conservative Leader Andrew Scheer.

If you listen to Conservative Leader Andrew Scheer, however, closing these loopholes will kill small business across this country. The facts, however, show that he is not only wrong, he's missing the whole point of the unfairness of the current situation.

For one thing, consider that two-thirds of small business in Canada make less than $73,000 a year, and so won't even be touched by the proposals.

In fact, the richer you are, the bigger the benefit. Someone making $300,000 a year could save themselves $50,000 a year in taxes — about as much as the average Canadian makes in a year. There's no way that can be considered fair.

It is even possible, if you can believe it, for doctors to pay a lower effective tax rate than the nurses who work side by side with them, for far less money. Fixing such an absurdity is only fair.

It should be noted that while many doctors are fighting any closure of the loopholes, another group of doctors has come out in support.

Fixing such an absurdity is only fair.

"We need adequate tax revenues to fund social programs such as affordable housing, pharmacare, social assistance, legal aid and the health-care system itself," the doctors wrote in an open letter to Finance Minister Bill Morneau.

"These programs directly impact the health of our patients, and we believe it is important for us to contribute to their sustainability through an adequate tax base."

The consultations on closing up these loopholes close on Monday, after which we will soon see what the final proposal looks like.

The federal government needs to be encouraged to stay the course and ensure — just as it promised during the last election and it its latest budget earlier this year — to bring greater fairness to the tax system.

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