“While NUPGE supports closing the private corporation tax loophole, we can’t afford to lose sight of the fact that closing one loophole is not enough to make our tax system fair.” — Larry Brown, NUPGE President
Ottawa (22 Sept. 2017) — The federal government’s plan to close the tax loophole for private corporations will make the tax system fairer, but it is only a small step towards a fair tax system. For example, taxing capital gains at a lower rate than earned income costs Canadians $10 billion a year. While the private corporation tax loophole costs between $250 million and $500 million a year.
“While NUPGE supports closing the private corporation tax loophole, we can’t afford to lose sight of the fact that closing one loophole is not enough to make our tax system fair,” said Larry Brown, President of the National Union of Public and General Employees (NUPGE). “For a fair and progressive tax system, the federal government needs to look at all the tax cuts and loopholes that have been put in place for the wealthy.”
Private corporation loophole benefits the well-off
The overwhelming majority of Canadians don’t benefit from the private corporations loophole. Very few low and middle income Canadians hold shares in private corporations. Even if they do, the income they receive is too low for them to benefit from the private corporations loophole.
For the wealthiest 1 per cent, it’s a different story and for the wealthiest 0.01 per cent it’s a dramatically different story. The 4 in 10 of the wealthiest 1 per cent who own all or part of a private corporation receive over $100,000 a year from the private corporation. For the 7 out of 10 of the wealthiest 0.01 per cent who own private corporations, the average income from private corporations is between $2.7 million and $3.5 million a year.
All self-employed Canadians deserve benefits – not just the well-off
There is no question that Canadians who are self-employed deserve benefits like maternity leave, pensions, long-term disability and employment insurance. But the claim that the private corporation loophole is the best way to do that doesn’t hold water.
The self-employed Canadians who most need benefits are not going to benefit from private corporations. They’re the workers who’ve been reclassified as contractors by employers trying to save money. They’re small-business people or farmers whose incomes are too low for them to benefit from the tax loophole for private corporations,
If people are genuinely concerned about making sure self-employed Canadians have access to benefits, the solutions are things like joining with unions and others fighting for expanded pension programs and EI. It’s supporting changes to labour legislation to make it harder for employers to avoid providing benefits by claiming their workers are self-employed.
More talk than action on tax fairness
While both the Harper and Trudeau governments have talked about the need for tax fairness, their actions haven’t matched their words. The federal Liberals abandoned plans to eliminate the stock option deduction which primarily benefits the very wealthy and costs Canadians $670 million a year. Treating capital gains the same way as earned income would provide a much needed $10 billion for services like health care, but has yet to find its way into a federal budget.
The lack of action on tax havens, regarding a tax avoidance scheme set up by KPMG in the Isle of Man, provides plenty of reasons to be worried. This scheme allowed wealthy Canadians to avoid paying taxes by hiding their money in shell companies in the Isle of Man, a known tax haven. There was talk of offering those involved an amnesty. At parliamentary committee hearings that were supposed to get to the bottom of the KPMG scheme witnesses were forbidden to even mention KPMG. Even after years of public pressure on the government to act, no criminal charges have been laid.
While the federal government has announced increased funding for action against tax havens, there are doubts about whether it is enough. There are also fears that, if the federal government isn’t prepared to act on a high-profile case, that nothing is being done in cases the public haven’t heard about.
“Unless it’s rapidly followed by many other measures to make the tax system fairer, the federal government’s attempt to close the private corporation loophole will have only minimal impact,” said Brown.
The National Union of Public and General Employees (NUPGE) is one of Canada's largest labour organizations with over 370,000 members. Our mission is to improve the lives of working families and to build a stronger Canada by ensuring our common wealth is used for the common good. — NUPGE