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Frank Stronach: Our mind-boggling monstrosity of a tax code

National Post logo National Post 2022-06-07 National Post
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If you want an idea of how convoluted and complex our tax system is, all you have to do is look through a copy of the Income Tax Act.

The fall 2021 edition of the tax code is a monster-sized book, nearly 3,000 pages in length, and it’s packed with thousands of mind-boggling passages, like Section 125.7(2), found on page 1,038:

“For a qualifying entity for a qualifying period, an overpayment on account of the qualifying entity’s liability under this Part for the taxation year in which the qualifying period ends is deemed to have arisen during the qualifying period in an amount determined by the formula A – B – C + D.”

As well as this example, from Section 148(4), on page 1,327:

“If a taxpayer disposes (other than because of paragraph (2)(a) or as described in paragraph (b) of the definition ‘disposition’ in subsection (9)) of a part of the taxpayer’s interest in a life insurance policy (other than an annuity contract) last acquired after December 1, 1982 or an annuity contract, the adjusted cost basis to the taxpayer, immediately before the disposition, of the part is the amount determined by the formula A X B/C.”

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

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

There are thousands more sections of the tax act that are just as head-scratching as the above examples.

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

No society can function properly and efficiently if its citizens don’t know or understand the laws they live under. I would venture to say that hardly any Canadians have even flipped through the pages of the tax act — which is incredible when you consider the huge bearing our tax code has on our economy and the impact it has on the take-home pay of working Canadians.

The fact that the code is murky and hard 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 sluggish and so many new start-ups struggle to get off the ground.

When I started my business years ago, I rarely had to get a legal opinion on a tax matter. But nowadays, more and more businesses have to devote a larger percentage of their revenue toward costs associated with tax filing and tax compliance. It not only saps time and energy, it diverts money that could have been reinvested in the business or put to more productive uses.

A 2016 report from the Fraser Institute titled, “Measuring Personal Income Tax Complexity in Canada,” made the following statement: “Canadian families and businesses incur significant costs complying with the tax system. Those costs include direct spending on items such as accountants, lawyers and computer software, as well as the financial cost of the time it takes to compile the materials and complete the forms.” If anything, matters have gotten even worse since the report was published.

Even the people tasked with figuring out 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 So Wrong and Why It Matters.” The report included a survey of the association’s more than 200,000 members, a majority of whom (61 per cent) agreed with the statement that the current tax system either hinders or strongly hinders business competitiveness.

There is no defensible argument for keeping our tax code the way it is. Our tax system has become a job killer and a wealth destroyer. It’s high time we fixed it by starting from scratch with one overriding principle: simplify, simplify, simplify.

In my next few columns, I’ll spell out some simple and streamlined solutions for revamping our tax system.

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