Thank you, Chair.
Good morning, committee members. Thank you very much for the opportunity to appear before you today. I'm here on behalf of the Canadian Labour Congress.
The CLC is Canada's largest labour central. It's the voice on national issues for 3.3 million working people in Canada and brings together national and international unions, provincial and territorial federations of labour, and more than 100 district labour councils from coast to coast to coast.
I am the director of the social and economic policy department of the CLC, but I'm not a tax expert. I'm here this morning to convey the CLC's support for the government's steps to address tax planning through Canadian-controlled private corporations.
The CLC welcomes the federal government's plan to close tax loopholes for very high income earners. In our view, this tax proposal is an important first step towards bringing greater fairness to Canada's tax system. Current tax rules surrounding CCPCs make it possible for someone earning $300,000 to save more on their taxes than the average Canadian worker makes in a year, and that is fundamentally unfair. There is strong evidence that the benefits of preferential tax treatment for CCPCs accrue disproportionately to a select group of high-income families.
According to the Department of Finance, two-thirds of the top 0.01% of income earners own a CCPC. Published research by Professor Michael Wolfson found that more than 70% of those in the top 0.01% with incomes over $2.3 million owned a CCPC, and nearly half of individuals in the top 1% did. These numbers compare with fewer than 5% of tax filers in the bottom 50% of the income ladder owning a private company of this sort. Those are 2011 figures. Among the bottom 90% of income earners, fewer than 10% had a CCPC. Moreover, a portion of these individuals who owned shares in a CCPC would be low-earning spouses of high-income earners and therefore be from high income-earning families.
I want to stress that these tax planning opportunities are generally not available to working people. To incorporate is a complex undertaking entailing not insignificant costs, particularly when multiple CCPCs are formed by a single individual. The ability to benefit disproportionately from the tax advantages of incorporation increases at higher income levels.
The number of CCPCs has increased by 600,000 in the last decade and a half, a 50% jump. This kind of tax planning is costing the federal government approximately $500 million a year or more.
Taxes pay for the vital services that we all rely on, from physical security and food safety to health care and education and disaster relief. Canadians expect everyone to pay their fair share. Our tax system currently generously rewards those who take on business risk. Canada has the lowest small business tax rate in the G7 and is described by KPMG as being the most tax-competitive country for business globally. Preferential tax treatment for CCPCs allows individuals to reinvest in their businesses at a reduced rate of taxation, and business owners are able to claim tax deductions on their business expenses.
We therefore support the government's steps to address tax planning through private corporations, but in our view reforms can't end here. After a decade and a half of aggressive corporate income tax cuts at the federal and provincial levels and increasingly favourable terms for small businesses, we need to ensure that top owners and corporations pay their fair share too, which means a more aggressive clampdown on tax havens and corporate tax dodging.
This would include eliminating regressive and ineffective tax loopholes by cancelling the stock option deduction; cancelling the flow-through shares deduction; fully including capital gains in taxable income; taxing foreign e-commerce companies to level the playing field for Canadian providers; increasing taxes on banks and financial institutions, which have received windfall profits from corporate income tax cuts over the last decade and a half; and introducing wealth taxes and making income taxes more progressive.
In closing, we hope that the 2018 budget and the government's legislative proposals coming out of this consultation will take on some of the most regressive, wasteful tax breaks as well as tax planning opportunities through private corporations, tax favours whose benefits go disproportionately to a small group of high-income earners and are beyond the reach of the vast majority of wage and salary earners in this country.
Thank you very much.