Tax code

Frank Stronach: Our jaw-dropping monstrosity of a tax code

There’s no defensible argument for keeping our tax code as it is.

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If you want to get an idea of ​​the complexity and intricacy of our tax system, all you need to do is look at a copy of the Income Tax Act.

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The fall 2021 edition of the tax code is a monster-sized book, nearly 3,000 pages, and it contains thousands of mind-blowing passages, like section 125.7(2), found at page 1038:

“For a qualifying entity for a qualifying period, an overpayment in respect of the qualifying entity’s obligation under this Part for the taxation year in which the qualifying period ends ends is deemed to have occurred during the qualifying period by an amount determined by the formula A – B-C+D. »

In addition to this example, from section 148(4), on page 1327:

“If a taxpayer disposes (other than by reason of paragraph (2)(a) or as described in paragraph (b) of the definition of “disposition” in subsection (9)) of any part of his interest in a life insurance policy (other than an annuity contract) last acquired after December 1, 1982 or an annuity contract, the adjusted cost base to the taxpayer, immediately before the disposition, of the part is the amount determined according to the formula AXB/C.

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And I saved one of the best for last, Section 18.1(8), on page 149:

“Subsection 18.1(10) applies where (a) the particular right of a taxpayer to receive a production to which an expense relates (other than an expense no part of which would, if this section were read without reference in subsections 18.1(7) and 18.1(10), deductible under subsection 18.1(3) in computing the taxpayer’s income) has expired or the taxpayer has disposed of the entire right (other than in connection with a provision to which subsection 87(1) or 88(1)) applies.”

There are thousands of other sections of tax law that are just as confusing as the examples above.

The tax code is not only incomprehensible to the average Canadian, it is also confusing to many lawyers and accountants who make their living deciphering tax laws. But the majority of Canadians — especially those with a reasonable level of education — should be able to read any tax law and understand exactly what it means.

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No society can function properly and efficiently if its citizens do not know or understand the laws under which they live. I would venture to say that almost no Canadians have even leafed through the pages of the tax law — which is incredible considering the huge impact our tax code has on our economy and the impact it has on the take home pay of Canadian workers. .

The fact that the code is obscure and difficult to understand acts as a drag on business efficiency and productivity. Nothing is black and white; everything is grey. It’s no wonder economic growth is slow and so many new start-ups are struggling to get off the ground.

When I started my business years ago, I rarely needed legal advice on a tax matter. But these days, more and more businesses have to spend a larger percentage of their revenue on the costs associated with tax filing and tax compliance. Not only does this waste time and energy, but it diverts money that could have been reinvested in the business or used for more productive purposes.

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A report 2016 of the Fraser Institute entitled “Measuring the Complexity of Personal Income Tax in Canada”, made the following statement: “Canadian families and businesses incur significant costs in complying with the tax system. These costs include direct expenses for items such as accountants, lawyers, and computer software, as well as the financial cost of the time needed to compile documents and complete forms. On the contrary, things have gotten even worse since the publication of the report.

Even people responsible for understanding the tax code are worried about our current system. In 2018, the Chartered Professional Accountants of Canada published a study titled “Canada’s Tax System: What’s Wrong and Why It Matters”. The report included a survey of more than 200,000 association members, the majority of whom (61%) agreed with the statement that the current tax system hinders or severely hinders business competitiveness.

There is no arguable argument for keeping our tax code as it is. Our tax system has become a job killer and a wealth destroyer. It is high time to remedy this by starting from scratch with one overriding principle: simplify, simplify, simplify.

In my next articles, I will lay out some simple and simplified solutions to revamp our tax system.

national post

  1. None

    Frank Stronach: The serious need for a simplified tax code

  2. THE CANADIAN PRESS/Jason Franson

    Jesse Kline: Our whole tax code has become a design project for nerds



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