Pre-Budget Consultations: What Tax Preferences Will Be Cut?

As a way to simplify the tax system, an overwhelming majority of respondents, 87%, to Knowledge Bureau’s February poll agree that investment income under $1000 should not be taxed. Will their wish come true?

With the March 22 federal budget around the corner, and deficits already kicking in, the Finance Minister will likely contemplate the cost of tax credits and deductions carefully. The details of what deductions and credits cost the government were just released in the Report on Federal Tax Expenditures 2016 for the 2013 tax year.

What are some of the more expensive tax provisions for the government? Here are the Top 12, estimated for the year 2017:

*As per the report, the cost of Registered Pension Plans, Pooled Registered Pension Plans and Registered Retirement Savings Plans are estimated on a cash-flow basis. That is, the net cost of these plans is the revenue forgone from the RRSP deduction and the cost of the non-taxable investment earnings less the taxes collected on withdrawals.

As to our poll respondents, here are some of their comments on the idea of non-taxation of a portion of investment earnings, which most hope will be reinstated in this round of budget provisions:

From Martin: “Bringing back the exemption on the first $1,000 of investment income would be reasonable. Lower income people could keep what they earn in interest to help with ever-increasing food and clothing costs. People with more investment income will be paying high taxes at their marginal level on most of their investment income anyway. They should bring back the capital gains exemption too.

“Over the past several years, most deductions the average taxpayer received have been taken away; and things which were deductions from income at the marginal level have been turned into non-refundable tax credits at the lowest tax rate, all increasing the amount of tax a person pays on the same amount of income. . . The government should have to use zero-based budgeting and made to account for the money they spend. An annual audit by a non-government body would be useful too.”

Ken contributed the following: “This is just another way of putting more money into what normally would be called a TFSA. At a 5% return, this is equivalent to a $20K investment becoming tax free. Want to make the tax system simpler? Get rid of all of the tax-deferral schemes!”

Brian says: “What they should do is eliminate capital gains tax on gains up to $5,000.”

Final word goes to Mitzi-Lynne: “I have bewailed the loss of that concession over the years and I would love to see it come back. . . I entirely agree with Brian’s observation on capital gains, except I would go back to eliminating tax on the gains altogether. The government takes no risk on our investments . . . but capital losses are not deductible against all other income.”

Thank you to all for contributing your opinion. Here is the Knowledge Bureau March poll question:

“To pay for future deficit spending, would you favor an increase in the federal GST over personal income tax increases?”

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