Do you have a 1972 Chevrolet half-ton sitting in your driveway? Or a 1987 Ford Tempo? How about a 1999 Toyota Corolla? If you do and regularly drive it, they’re likely not efficient and require a significant amount of upkeep.

The years of vehicles represent the last three times Canada had

meaningful or significant tax reform

that made life better for Canadians. Yep, our

tax statute and administrative system

are that old and long overdue for a tune-up — better yet, an overhaul.

Canadians should be tired of driving old gas-guzzling lemons, but what does tax reform mean?

Many non-tax professionals are confused about what it means. Some think it’s simple tax rate reductions. One reader recently told me the

current government had engaged in tax reform

by reducing the lowest tax bracket by one percentage point to 14 per cent. Sorry,

that reduction is meaningless

for most Canadians — about $110 of average annual savings per person — and poor politics, nothing more.

Some of my tax peers think tax reform means taking a surgical approach to the

Income Tax Act

to clean up the obvious messes. There is no shortage of provisions in the statute that need cleaning up.

For example, the prohibition on

deductions on short-term rentals

for certain owners is one of the most offensive pieces of legislation I have ever seen. You know the system is in dire need of repair when criminal drug dealers, who are allowed to deduct their business expenses if they report their income, are treated more favourably under the Income Tax Act than entrepreneurial short-term rental owners.

I recently attended a tax conference where one of the agenda items was a tax reform session. Some excellent tax practitioners walked through a list of tax provisions that need fixing, amending or deletion. With respect, tax reform is much more than simple surgical technical fixes.

Some academics who mention tax reform will often pull out the shallow comment of “Be careful what you wish for; tax reform might just be tax increases given the need for increased tax revenues.” This one always irks me because good tax reform should involve much more than looking for ways for the government to increase revenues.

Tax reform to me is a litany of things. But it’s bound together by some common objectives: reduced complexity; more approachable to the average Canadian; a tax system that encourages risk-taking and investment; and encourages successful Canadians to stay in Canada. Good tax policy can greatly impact all of those things and it should act as a magnet rather than the repellent it currently is.

Economist

Jack Mintz

has long called for

“Big Bang” tax reforms

that go well beyond surgical fixes and simple tax rate adjustments. For example,

corporate tax reforms

could encompass a “Made in Canada” version of the very successful

corporate distribution tax

that Estonia has.

Such a model involves a

blanket deferral of corporate tax

for Estonian corporations’ profits to the extent that such profits are reinvested back in the company. With some Canadian adjustments, this could be a very powerful economic incentive for entrepreneurs and businesses here to invest in Canada.

However, when this idea is raised, there are often many naysayers in the tax community who offer plenty of reasons why this idea won’t work. I’m obviously not a fan of that commentary. Instead, I think of the ambition of some of our country’s builders who thought big. Can you imagine the naysayers who thought building our country’s national railway was impossible? The 1885 ceremony of the

Last Spike

must have been a gratifying moment for such an ambitious achievement despite the naysayers.

The same type of naysayers existed when the eventual forefathers of Canada started dreaming about the Dominion of Canada ,which culminated into our great country on July 1, 1867, with Sir John A. MacDonald being our country’s first prime Minister.

Successful tax reform requires big thinking, but it also includes an appropriate process. The last time a significant review occurred was the

Royal Commission on Taxation

, which took four years —

from 1962 to 1966

— to review and eventually release its report and recommendations. Should we do that again? I’m an idealist and would love to do that, but I’m also a realist. Given the political environment, it’s not realistic.

Instead, a

short-term task force

— such as that proposed by the Conservatives before the last election campaign — is more realistic. Although the Liberals proposed “an expert review of the corporate tax system” during the campaign, it did not appear in the recent budget — not surprising. The Liberals appear to have no political desire to engage in meaningful tax reform.

What does all this leave us with? A tax system that actively repels investment, punishes success and buries Canadians in needless complexity, combined with a group of voters and politicians who think ballooning deficits, plummeting productivity and capital flight are somehow acceptable.

Tax reform is about building a system that

works for taxpayers

, entrepreneurs and the long-term health of the country. Reform done right is ambitious. It’s responsible. And it’s long overdue.

As Winston Churchill once said, “To improve is to change; to be perfect is to change often.” Canada hasn’t meaningfully changed its tax system in over 50 years. That’s not perfection; that’s neglect.

If you’re still clinging to a 1972 Chevrolet half-ton as your daily ride, I admire your stubbornness, but I wouldn’t recommend it. And I sure as hell wouldn’t use it as the blueprint for Canada’s economic future.

It’s time to trade it in.

  • Liberals ignoring the ‘economics of scarcity’ could mean more taxes are coming
  • Canadians should not take it if the CRA’s 100-day improvement plan doesn’t offer up real solutions

Kim Moody, FCPA, FCA, TEP, is the founder of Moodys Tax/Moodys Private Client, a former chair of the Canadian Tax Foundation, former chair of the Society of Estate Practitioners (Canada) and has held many other leadership positions in the Canadian tax community. He can be reached at kgcm@kimgcmoody.com and his LinkedIn profile is https://www.linkedin.com/in/kimgcmoody.

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