OTTAWA — Prime Minister Mark Carney's government is gearing up for long-awaited tax code reform, focusing on small businesses as a top priority. Wayne Long, MP for Saint John–Kennebecasis and secretary of state for the Canada Revenue Agency and financial institutions, acknowledged that major reform is overdue, stating, "Is a total review of the tax code needed? Absolutely."
As part of their pre-budget consultations, Long highlighted the need for simplification and improvement of Canada’s tax system, echoing sentiments from tax experts and advocates. The upcoming fall budget is viewed as "chapter two" in the Liberal government's efforts to foster investment and facilitate growth following the impacts of U.S. tariffs. Long indicated that they've received feedback from a "major international player" interested in investing more in Canada, contingent on favorable changes to the tax code.
The Liberals have made several adjustments to the tax system over the past year, including providing immediate tax write-offs for businesses investing in new equipment and reducing the lowest personal income tax bracket by one percentage point. However, Conservative finance critic Michael Chong criticized the government for merely "tinkering around the edges," emphasizing that significant tax reform is essential for economic growth. He pointed out that the last substantial overhaul of Canada's tax system occurred 40 years ago under Prime Minister Brian Mulroney.
Chong contended that Canada’s current tax system hampers business investment and productivity, pushing capital outside the country. He suggested creating a task force to modernize the tax system, while the Conservative party claims that high taxes deter high-income individuals and businesses from establishing a presence in Canada. Long, on the other hand, noted that the government is committed to making tax reform manageable by addressing it "one bite at a time," especially considering opinions from small businesses about navigating the current tax landscape.
Dan Kelly, president of the Canadian Federation of Independent Business, expressed cautious optimism about the government's commitment to tackling what he calls an "entrepreneurial drought." However, he urged that entrepreneurs will ultimately judge the government's seriousness based on proposed changes in the budget. He criticized previous governmental strategies under former Prime Minister Justin Trudeau as ineffective and scattered.
Tax experts unanimously pointed out the excessive bureaucracy within the tax code as a prime target for simplification. Many argue that eliminating boutique tax credits, which cater to specific industries or demographics, would also be necessary, though such a move may be politically contentious. Long emphasized that achieving a balance between political feasibility and economic objectives is critical, claiming that the government's current majority position strengthens its ability to push forward its reform agenda.
Experts contend that a wholesale approach to tax reform might be more beneficial than a piecemeal strategy, as it could help stakeholders assess the totality of the proposals rather than isolating specific recommendations. Ryan Minor, director of tax at CPA Canada, illustrated this by suggesting that eliminating certain small business tax breaks could streamline administration, although he acknowledged that losing any benefit could be unpopular unless offset with new incentives.
Kelly articulated the importance of maintaining the small business deduction, advocating for a raise in income thresholds for lower tax rates to support small enterprises. He expressed that while simplifying the tax code is necessary, any reductions in taxes must be balanced with compensatory measures to safeguard government revenue, recognizing the political risks involved with altering tax structures.
Both Chong and Kelly maintain that lowering tax rates could stimulate growth in both new and existing businesses, potentially balancing any revenue losses faced by the government. As discussions surrounding tax reform progress, the next budget will be a critical moment to assess whether the government's approach aligns with the needs of Canadian businesses.
