Taxes are very much on the agenda these days as governments at all levels carry significant debt and are looking at how best to stave off credit rating downgrades without making Canada even more uncompetitive than it already is compared to other developed countries. The most recent international tax comparison report by the Tax Foundation looked at corporate, personal, property, consumption and international taxes in 2024 among the 38 OECD countries. The findings were not promising, with Canada ranking a middling 17th, dropping two places from the previous year.
Taxes on capital gains at a 35.7 per cent rate and dividends at 39.3 per cent are much higher than the average OECD rates of 19.7 and 24 per cent respectively. Despite this, the Liberals wanted to significantly increase capital gains taxation until they changed their tune virtually overnight as they were surprised by the loud and justified opposition to the tax hike from Canadians. Our rate of corporate taxation at 26.2 per cent is also above the OECD average or 23.9 per cent. Along with the insane amount of regulation that has been inflicted upon businesses over the last ten years, its no wonder we have a dearth of investment in Canada that is dragging down our economy and standard of living.
The recent federal election saw personal income tax reduction promises from both the Liberals and Conservatives. Although it is welcome to see any government talk about tax cuts, the federal Liberal government’s much ballyhooed personal tax reduction had turned out to be more of a damp squib than a boon to overtaxed Canadians struggling to make ends meet. The Liberals claim this cut, to be implemented in the second half of 2025, will save the average individual $420 in a full year. The more objective and credible Parliamentary Budget Office, however, states the annual savings are more like $140 for an individual – barely enough to notice.
Let’s hope this small reduction is part of a longer and more significant trend and will also include corporate taxes. Canada remains uncompetitive with our most important influence, the U.S., and Trump has said he will reduce personal and corporate taxation which, coupled with tariff uncertainty, will increase the United States’ attractiveness to Canadian businesses.
The elimination of the Digital Services Tax (DST) was a surprise, as the Liberals have insisted for years it was absolutely necessary, and Carney himself claimed he would not budge on it two days before he did just that when U.S. President Trump broke off trade negotiations with Canada, ostensibly because of the DST. The Biden administration had also strenuously objected to the DST, so this was not a partisan issue. Canadians can hope that supply management in the dairy and poultry sector will be the next “necessary, essential, mandatory” policy that Liberals will drop like a stone with US opposition.
Another tax problem that still exists in some Canadian jurisdictions is tax brackets not indexed to inflation. All federal brackets do change with inflation annually, and most provinces have or are in the process of indexing their personal tax brackets. The two exceptions are P.E.I., which has not changed their tax brackets since 2008 and Ontario, where the top two tax brackets remain unindexed. Not indexing tax brackets to inflation is basically theft, as an individual’s taxes increase only because inflation has increased, not because their income is actually higher.
As the largest province, Ontario not indexing their two top brackets – at $150,000 and $220,000 – is disgraceful in a province that claims to be “Open for Business.” They likely believe they can get away with this thievery from a political standpoint as they appear to be taxing the “rich.” However, for a government that says they want to attract professionals, entrepreneurs, doctors, engineers and the like, this is a very counterproductive strategy, not to mention unfair.
Another element Canada’s tax system sorely needs is simplification. Our tax system is so complex that massive amounts of money are wasted by individuals and businesses who must hire professionals to deal with the complexities. Although this may be good news for accountants and tax lawyers, it is not a feature of an efficient, productive economy.
It is a truism that no one ever believes themselves to pay too little tax and would prefer to chip in a bit more. But Canadians are justified in their conviction they are overtaxed, and the data prove it. Capital and labour are more mobile than ever in our technological age, making tax competitiveness essential for a successful economy. Something has got to give on the tax front if Canada is going to reverse the negative economic path we are currently on.
She has published numerous articles in journals, magazines & other media on issues such as free trade, finance, entrepreneurship & women business owners. Ms. Swift is a past President of the Empire Club of Canada, a former Director of the CD Howe Institute, the Canadian Youth Business Foundation, SOS Children’s Villages, past President of the International Small Business Congress and current Director of the Fraser Institute. She was cited in 2003 & 2012 as one of the most powerful women in Canada by the Women’s Executive Network & is a recipient of the Queen’s Silver & Gold Jubilee medals.
