The Politicized Complexity of the Canadian Income Tax Act.

• Author: Peddie, Matthew

An effective tax system in theory operates with objectivity in a fair, transparent and simple manner, and is used to maintain government expenditures to support and stimulate the economy. Unfortunately, this has never been the case in Canada. Since the introduction of the tax system in 1917, there has been an elaborate evolution that has led us to extreme national debt levels and a complex tax system. The introduction of tax changes and tax credits has historically been a politically charged strategy used by government to sway voters. In particular, "boutique" tax credits are used to target very specific groups of citizens. These are tax credits that apply to small segments of the population and therefore have minimal overall tax implications individually. As more of these measures are introduced, the tax system becomes more complex and, in turn, more difficult for government administration to maintain.

Tax exemptions, deductions, and credits have become extremely prevalent in the Canadian tax system. As of 2015, there were 182 exemptions, deductions, and credits combined across personal taxes, corporate taxes and GST. The accumulation of benefits to taxpayers has been extremely high with a reduction in potential taxes to the government of over 50%. This includes the major tax benefits and more minor targeted credits that complicate the system. Major tax benefits are widely used and benefit Canadians as a whole. Boutique tax credits are much more specific and benefit only certain Canadians. They are often used to gain popularity. The question to ask really comes down to:

Are boutique tax credits that are targeted to specific groups effective?

In order to determine the effectiveness of a tax credit, the following criteria could be used:

1. Does it add value to the targeted group?

2. Is it fair?

3. How much does it cost the government?

4. Is this cost made up in other areas?

However, even with an in-depth review of these criteria, it is difficult to assess the impact of the tax credits because there are factors to consider other than direct government revenues and costs associated with each different credit. The effectiveness is derived from the political perspective or influence and, in large, it is one of the major reasons that boutique tax credits are used and publicized in such a positive light.

Politicians continue to use boutique tax credits because of the inherent political value in providing tax breaks to groups that provide support in...