Liberals aim to ‘go further’ by targeting high-income earners with new budget minimum

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OTTAWA – More than a quarter of Canadians who earned more than $ 400,000 in 2019 paid less than 15 percent of the federal tax in 2019, an astonishing number as the Liberal government reconsiders how to tax Canada’s highest earners.

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“Some high-income Canadians still pay relatively little personal income tax (PIT) as a fraction of their income – 28 percent of total income above $ 400,000 payers file an average federal PIT rate of 15 percent or less, which is less. Than the salaries of some middle-class Canadians, ”read the 2022 federal budget, released Thursday.

In the document, Finance Canada released new data based on 2019 tax data showing that about 18 per cent of Canadians who earned $ 400,000 in total income that year – or 0.5 per cent – paid less than 10 per cent (and sometimes even 0 per cent) federal In the tax.

Another 10 percent of wealthy Canadians pay up to 15 percent, the first income tax bond for the federal government. Of the country’s top 0.5 percent earners in 2019, the remaining 72 percent paid more than 15 percent in federal taxes.

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“There are still thousands of wealthy Canadians who pay a small amount of personal income tax each year. This is unfair, and the federal government is committed to changing that, “said David Cook, chief of The Christian Science Monitor’s Washington bureau.

While many of these 28 percent have paid less tax completely legally, the government is concerned that many more have found ways to deduct much more from their income.

“These Canadians make significant use of deductions and tax credits and generally find ways to tax their incomes at a much lower rate,” the budget said.

But that’s where Canada’s little-known Alternative Minimum Tax (AMT) provision should be introduced. The Royal Bank of Canada defines AMT as a secondary way of calculating income tax, which “prevents high-income earners and trusts from paying little or no tax. Demands certain tax deductions and the consequences of certain tax incentives, including Canadian dividends and capital gains.”

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But the federal government acknowledges that the AMT, which has not been significantly updated since 1986, is not working.

So now it is looking for a new minimum tax system that wants to “go further” to ensure that wealthy Canadians “pay their fair share of taxes”.

The budget does not elaborate on this fall, but tax experts say it is a very attractive move by liberals to eliminate inequality in the tax system.

Jamie Golembek, managing director of CIBC’s Tax and Estate Planning, said he was surprised to find that 28 percent of wealthy Canadians paid so little in federal taxes in 2019.

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“This number seems crazy to me,” Golmbek said. “We have an AMT, it affects very few people, literally, at the end of the day … and it obviously doesn’t capture enough people in their opinion.”

“It’s very interesting,” he added.

Greg Bell, a tax expert at KPMG, says Finance Canada needs to go deeper into how so many wealthy Canadians were able to reduce their total income by filing their taxes.

“The first question that comes to my mind is, if they have more than 400,000 in income, how are they getting their tax rates so low?” He said.

But AMT’s review is just one of many tax systems in the recent federal budget that allow experts to address shortcomings that allow some corporations or wealthy individuals to pay lower taxes in the eyes of the government.

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Liberals have pledged to invest $ 1.2 billion over the next five years in the fight against tax crimes by the Canada Revenue Agency, especially by increasing audits of wealthy companies and individuals, as well as against using Canada as a haven for money laundering (also known as “snow washing”).

For the most part, experts agree that most measures amount to “housekeeping” or patching problems or gray areas known in federal law.

“They have a laundry list of things they don’t like, and when (a problem) gets serious enough, they follow it,” Golmbek said.

One of the most significant changes to the public treasury announced in this budget is to ban private Canadian companies from using foreign corporations, such as shifting overseas shell companies or their headquarters to a tax haven to avoid paying wholly Canadian-owned and regulated. Canadian tax rates.

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The government estimates that the proposal will be $ 4.2 billion in the five years starting 2022-23.

The budget also hopes to recover roughly $ 135 million annually by closing the “double-deduction” loophole, allowing companies to claim cuts in dividend-paying stocks that they bet both on and against.

Canadians are expected to return an additional $ 150 million a year to government coffers by improving anti-evasion rules to ensure they pay their fair share of taxes when they use the so-called interest coupon stripping system.

“Because of the differences between Canada’s different tax treaties, the interest received from Canadian residents is often subject to different tax rates depending on where the recipient resides. The interest coupon stripping system exploits these differences and allows some to pay lower taxes, ”the budget reads.

Finally, the budget promises to review and strengthen federal regulations aimed at preventing transactions that avoid objectionable taxes, although no further details are provided.