Justin Trudeau’s Liberal government expects to raise C$4.79 billion ($3.58 billion) over five years by revamping parts of Canada’s tax system, with the biggest measures coming from cracking down on tax evasion and eliminating “inefficient” tax policies. Canada expects to spend an additional C$523.9 million over five years to prevent tax evasion and improve tax compliance — a move expected to bring in C$2.5 billion of revenue in that period. “It’s a demonstration that the government is taking that area very seriously and that they’re expecting to have returns from that,” said Albert Baker, global tax policy leader for Deloitte.
Absent from Trudeau’s budget released Wednesday were broad changes to personal or corporate taxes or the capital gains tax — an area that had sparked concerns among entrepreneurs and investors ahead of the budget. But other measures — closing loopholes, eliminating tax advantages for private companies, and cutting tax credits — will have some effect on professionals, business owners and companies.
The budget proposes to cut a tax credit for public transit passes by July, raising C$1.01 billion over five years — the single biggest measure among the tax changes proposed. Makers of beer, wine and spirits will also face a 2 percent increase in excise duty rates, bringing in C$470 million over five years. Changes to tobacco taxation — which includes eliminating a tobacco manufacturers surtax and increasing excise duty rates — will bring another C$225 million.
Professionals including accountants, dentists, lawyers, doctors, veterinarians and chiropractors will no longer be allowed to use billed-basis accounting — a way to defer taxes — under the fiscal plan, resulting in C$425 million in additional revenue in the first three years. Oil-and-gas companies will see expenses for drilling successful wells reclassified for a different tax treatment, adding C$145 million in three years.
The government also proposes new rules governing when derivatives investors can recognize gains and losses on their investments, netting C$304 million over five years.
Uber riders will be paying more under the proposed plan, with the budget calling for ride-sharing services to charge sales tax on their fares, bringing them in line with the taxi industry. That move will bring in C$20 million over five years.
Other changes may be down the road. The government pledged to release a paper “in the coming months” targeting tax planning strategies used by private corporations, arguing that such moves can result in high-income individuals gaining unfair tax advantages. These strategies include converting a company’s regular income into capital gains or holding a passive investment portfolio inside a private corporation.”
“Our review of federal tax expenditures highlighted a number of issues around tax planning strategies using private corporations,” Morneau said in the text of his speech to Parliament. “Strategies that can result in some very wealthy individuals getting unfair tax breaks at the expense of others.”
Canada also plans to amend the Income Tax Act to tighten rules for life insurance companies including Manulife Financial and Sun Life, preventing them from using their foreign operations to reduce income tax when insuring Canadian risks, according to the budget.