Analysis: Fair tax measures in Budget 2019

The taxation measures in budget 2019 include:

1. A commitment to limit the use of the stock option deduction regime and move to align it with tax treatment in the United States for employees of large mature firms (202-204). More details will be announced before the summer of 2019, but they plan to cap the amount available for this tax break to $200,000 annually on the grant value of stock options for each individual in a large long-established mature firm. For start-ups and early stage firms, they have no plan to limit the use of this tax break. is commitment is a dilution from Liberal platform commitments in both the 2011 and 2015 election campaigns. By not including these specific measures in the budget, these changes won’t be included in the budget omnibus bill and so wouldn’t take effect before the election, so we can expect to see this as another Liberal election commitment—for the third time. But including it in a budget marks some progress. C4TF continues to advocate for a full closure of this loophole so stock option income is taxed on the same basis as employment income. Finance Canada estimates that this tax break costs the federal government $740 million annually.

2. Tightening a few smaller tax loopholes that wealthy individuals can use to convert ordinary income into capital gains income, thereby benefiting from the lower tax rates that apply to capital gains income (p 207). C4TF also advocates for closing the $15 billion annual capital gains tax expenditure. If capital gains income were taxed at the same rate as employment income, there wouldn’t be the need to include all these measures to restrict abuse of it.

3. Additional funding to the CRA of $250 million over five years, including:

• $151 million over five years (p 197) to hire additional auditors to target tax evasion associated with cryptocurrencies and the digital economy, extending programs to combat offshore tax evasion
• $51 million to the CRA and Statistics Canada (31-33) over five years to target tax evasion and financial crime using real estate, and 
• $50 million over five years to make telephone support line permanent and to speed up adjustments to tax files for individual taxpayers. 
• $4 million over two years to increase awareness of and provide advance payment of the Canada Workers Benefit to workers who need it.

These are positive but we need more ambitious and significant measures both to combat tax evasion and to ensure individuals get the benefits they are entitled to. Canadians for Tax Fairness has advocated for the CRA to be more proactive to ensure that all Canadians receive the tax benefits they are entitled to, and proposed consideration of the system used in Norway and other countries where the tax agency sends out pre-filled tax forms to all individuals who want them.

4. Additional funding of $161 million over five years to the RCMP and FINTRAC to fight against money-laundering and terrorist financing, legislation to require federally-registered corporations to make their beneficial ownership information available to tax authorities and law enforcement, and tighter laws to crack down on money laundering and terrorist financing. C4TF, Transparency International and others advocate for the establishment of a public and accessible national registry of the beneficial owners of corporations, trusts and real estate, as is available in other countries. Canada has the weakest corporate transparency rules in the G20, which makes us an international haven for money laundering and shell corporations.

5. A 25% refundable labour tax credit for salaries and wages paid to eligible newsroom employees of “Qualified Canadian Journalism Organizations” (QCJOs) along with a 15% income tax credit for up to $500 in subscriptions to eligible digital news subscriptions. The budget also proposes to make qualified news organizations eligible for charitable organization status. While these measures, at a cost of almost $600 million over five years, should be welcomed by the media industry, the federal government must take steps to eliminate the tax preferences it provides to large foreign digital giants, advertisers, news aggregators, and other foreign e-commerce firms including Google and Facebook. 

The Budget includes a number of other, mostly minor, positive tax measures. These include:

• A refundable Canada Training Tax Credit worth $250 a year for individuals aged 25-64 and income between $10,000 and $150,000 annually. These funds will be able to be used to cover half the cost of training fees at universities, colleges and accredited occupational skills training institutes.  
• An increase in the withdrawal limit under the Home Buyers Plan to $35,000
• Tax incentives for businesses to purchase zero-emission electric or fuel cell vehicles, along with a purchase incentive of up to $5,000 for individuals to buy these types of vehicles, with a purchase price of less than $45,000.  
• Expansion of eligibility to the Canada Workers Benefit as a single parent to kinship care providers. 
• Removing the GST/HST from human in vitro eggs and embryos for fertility treatments, just as the GST/HST doesn’t apply to human sperm. This is a clear example of how our tax system has discriminated against women, but certainly not one of the most significant ones.

CONCLUSION

Budget 2019 includes a wide scattering of measures both in terms of spending and a few tax fairness measures. While these are welcomed, we certainly hope that election platforms include much more ambitious tax fairness measures that will reduce inequalities, and provide additional funding required to finance important social programs including a national childcare and pharmacare programs.