Allan Lanthier: The Liberals want to impose a minimum tax? We already have a minimum tax

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Liberal proposal could deny donation credits to people who already pay minimum tax

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The Liberals released their campaign platform on Wednesday and it’s a doozy. Its 82 pages contain more than 100 spending promises, as well as new taxes to ensure that everyone “pays their fair share”. The most curious element on the tax revenue side is a proposed 15 percent minimum tax for individuals in the upper bracket: “curious” because Canada already has a minimum tax: it was introduced in 1986 – there is is 35 years old.

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The platform says the Liberals will “create a minimum tax rule” so everyone in the top bracket pays at least 15 percent – the regular federal rate in that bracket is 33 percent – “To suppress their ability to artificially pay no tax through excessive use of deductions and credits.”

Say what? We already have a minimum tax of 15%. 100, introduced in 1986 under a Conservative government for precisely the same reason. The tax ensures that high-income people pay extra tax if they use too many of the many tax incentives created by Parliament over the years.

Individuals start with their taxable income as otherwise determined, and add various tax deductions and preferences, such as tax-free half of capital gains, stock option deductions, and shelter losses. fiscal. A 15 percent tax then applies to this adjusted amount. But – and this may be key to understanding the Liberal proposal – tax credits, including the donation credit, then reduce the amount of minimum tax.

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So what could a new tax do that the existing tax does not? The Liberals will not say: neither will the Parliamentary Budget Officer who quantified the proposal (at $ 1.7 billion in new taxes over five years). However, the word around Ottawa is that charitable giving could be one of the targets. The proposal could deny donation credits to people who already pay minimum tax. The denial could also hit high-income philanthropists.

Suppose after a successful career Janice has all the money she needs. She earns $ 1 million per year and donates $ 750,000 to charity (credit for donation is capped at 75% of income). His federal tax on the remaining $ 250,000 (at 33%) is $ 82,500, which gives him a tax rate of about 8% on his income of $ 1 million.

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If the Liberal proposal applies to Janice and rejects the donation credits, she should now have a minimum tax of $ 150,000 for an average tax rate of 15%. As a result, Janice may well decide to reduce her donations so that her regular federal tax is also $ 150,000.

What the hell did the Liberals think? I guess they felt compelled to criticize high income people as part of their platform. But with no appetite for substantive measures – like an annual wealth tax – they settled on signaling virtue: adjustments to a minimum tax that we already have.

The inspiration for the proposal may well be Warren Buffett, who has been criticized in the United States for “avoiding” taxes by using charitable donations. It has been reported that although he has enormous wealth, he pays very little federal income tax in the United States. And one of the reasons is his charitable donation.

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Buffett has donated around US $ 100 billion to five foundations since 2006 and, in response to a question at his company’s 2010 annual general meeting, he said, “If you want to give all your money, it’s a formidable tax evasion. But is it really a “dodge”? Should he really be taxed on money he does not use himself but donates to good causes?

Buffett said he prefers to hand his money over to charities rather than the government. That could be part of our question on the September 20 ballot box, whether it’s child care, family income, or charitable donations. Do you want the government to put in place massive tax and spending programs? Or would you prefer that individuals take more personal responsibility for spending decisions? The answers to these questions can determine how some of us vote.

Allan Lanthier is a retired partner of an international accounting firm and has served as an advisor to the Department of Finance and the Canada Revenue Agency.

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