business tax

Canada must increase business investment

Capital formation in plant, machinery and equipment remains a major factor in growing our productivity and competitiveness.

Canada asleep at the wheel on U.S. tax reform

The overall tax rate on new investment in the U.S. may fall to 18.6 per cent compared to 21.6 per cent in Canada.

Canadians spend billions complying with complex personal income tax system

When established in 1917, Canada’s Income Tax Act contained 3,999 words compared to 1,029,042 words today.

Trump’s tax plan and the impetus for corporate tax cuts in Canada

A one percentage point drop in the combined corporate tax rate would increase the average wage of Canadian workers by up to $390.

B.C.’s 2015 budget: The status quo isn’t good enough

Against the backdrop of a sluggish and uncertain economy, B.C. Finance Minister Mike de Jong unveiled a largely status quo budget on Tuesday.

Tax people, not corporations: Public's misplaced sense of fairness costs the economy dearly

Until recently, there was a consensus in favour of competitive business taxes. But whenever governments are strapped for cash - which is most of the time for most of them, given their voracious appetite for spending - eyes quickly turn to corporate income taxes as an expedient and presumed painless way to extract more revenue. Two provinces raised corporate tax rates in 2013.

Printer-friendly version

There are a number of economic costs associated with taxes, some of which unfortunately, are almost always ignored or misunderstood. The direct and most visible cost of taxes is simply the tax itself. It is the amount of earnings that individuals or businesses forego when they pay taxes. Put simply, an individual earns income but only receives a portion of it after paying for taxes. This is the direct cost of taxation: loss of income.

Another cost of taxes?which is often recognized but frequently not taken sufficiently into account in public policy discussions?is the incentive effects of taxes. As noted above, taxes create a wedge between what individuals and businesses earn and what they actually receive for their efforts. The incentive costs from taxes are a result of changed behaviour and foregone opportunities. For example, workers might decide to work less overtime because they deem the reward (that is, extra earnings) insufficient to compensate them for the extra effort. Similarly, businesses might decide to forego expansion or investing in new businesses if the after-tax reward (adjusted for risk) is insufficient. In both these cases, society is less well off because of decisions that were made, in part, due to the effects of taxes.

The costs associated with complying with the tax code are almost always ignored in public policy debates. Compliance costs include the time required to collect and organize receipts, accounting and other professional fees, the time required to complete tax forms if professionals are not used, appeal costs if applicable, and the general costs of remitting returns. Similarly, the administrative costs incurred by governments to administer and collect taxes are often ignored. In both cases, one explanation of this is the lack of quantitative estimates of these costs. This study will facilitate taking these costs into account.

In 2011, between $19.2 billion and $24.8 billion was spent complying with the personal and business tax system in Canada. An additional $6.6 billion was collectively spent by governments across the country administering the tax system. Should Canada choose to embark on fundamental tax reform, this could reduce these costs by simplifying the tax system.

Subscribe to RSS - business tax