Madam Speaker, I rise today to speak on the need for simplification of the Income Tax Act.
The Income Tax Act was introduced in 1917. As we all remember it was to be a temporary tax to pay for the first world war. At that point Canadians had an obligation to defend democracy and freedom around the world. In order to do so they introduced a tax which they called the income tax. It was to help pay for the war but it was only to be a temporary situation. After the war when things were back to normal the tax would be eliminated. That was 77 years ago. The war has been over for 75 years and we still have the tax.
There are basically two things in the world we can count on: one is death and the other is taxes. The bad news is that death comes but once and taxes every year.
Back in 1986 the government at the time suggested that it would introduce tax reform because taxes were far too complex. Back in those days we had 10 different categories or 10 different brackets to reach the maximum marginal rate of income tax. The government said that it would reduce those 10 brackets to 3 brackets and that the taxes would be much simpler because it eliminated 7 different categories or brackets of increasing levels of taxation.
It did not say that it would leave the top bracket where it was and take a bit off the people at the bottom or that the middle class would get a bit of a break which the government would recoup later. It called that tax simplification or tax reform.
I have here the 22nd edition of the Income Tax Act published in August 1993, all 2,091 pages. I am an accountant. This may make sense to a layman, but as an accountant I have a hard time dealing with the complexity of the Income Tax Act. There are statements and sentences that go on for hundreds of words without a period to indicate the end of a sentence. The complexity and the meaning of the Income Tax Act test the abilities of the wisest, the most intelligent and the most expert in the country.
I sit on the public accounts committee. We were examining people from the Department of National Revenue and the Department of Finance regarding a loss to taxpayers of $1.1 billion that was pointed out by the Auditor General because the government that wrote the legislation could not understand the meaning of its own words. The resource sector disagreed with the interpretation of the words. It ended up in court. The government lost. The resource sector won. Taxpayers are out $1.1 billion because of the complexity of trying to define the true meaning of one simple clause in the Income Tax Act. All 2,091 pages of the act give some idea of the complexity.
Capital gains was introduced back in 1971 by the Liberal government at that time. It was deemed to be a tax on increasing wealth. However at that point in time this country was at the threshold of a decade of tremendous inflation. Capital gains in essence became a tax on inflation.
Capital gains was not a tax on increasing wealth but a tax on inflation and the government knew that. It knew people were not getting richer. If you bought a house in 1971 for $25,000 and sold it for $100,000 in 1981, the actual value of your wealth may
not have gone up, but in terms of actual dollars it went up significantly. The government said: "You have to pay a large part of that in tax". It was a tax on inflation, not on wealth creation.
Along came the Tory government which said: "We would like to give our friends a break". So the Tories brought in the capital gains exemption saying it was going to be phased in over a number of years. They envisaged that the first half a million dollars of capital gains was going to be tax free. Remember that the average person on the street really does not get the opportunity to have half a million dollars in capital gains. However the intent was: "We are going to give it to the taxpayer and we are also going to segregate it into things such as the capital gains exemption for farmers". They were going to be different.
As time went on the government realized it could not afford this measure it was introducing so it capped the capital gains exemption at $100,000 but said: "Wait a minute. We are going to add some complexity to this. What about the farmer and his half a million capital gains exemption? Is he going to get both?" No, he can only get one, half a million dollars.
As one accountant explained it to me, we are going to have two buckets. There will be a big bucket for the farmers which will hold half a million dollars capital gains exemption. Inside that big bucket will be a small bucket which contains the $100,000 capital gains exemption. When the small bucket runs over then that of course is subtracted from the large bucket.
The concepts being put forward belie the comprehension of the average person on the street. When someone does not understand the tax he is paying, how do we expect him to pay it voluntarily and willingly in a democratic society? This is why we are finding that coercion and pressure are becoming more and more the order of the day. That statement has come right from the Minister of National Revenue who has said he will not tolerate people who evade taxes and so on. Yet the people on the street cannot understand the tax they are being asked to pay.
This government has to listen. When people fill in their tax returns they write the cheque saying: "I am mad at the government. I don't know why I have to pay all this amount of money. My accountant says I have to pay it but I don't understand it. I feel I pay far too much and I am being ripped off". We have a problem. This government has to explain to taxpayers how the taxes are arrived at. Having 2,091 pages of small print is not the way to go about it.
We have seen complexity added to the Income Tax Act as a kind of smoke and mirrors attitude to collect more taxes. Ten years ago the government introduced limitations on the Canada savings bond accrual.
Canada savings bonds are a Canadian institution. We have been buying them since the war to help the government fund its debt. Some people bought the compound interest bonds. They keep them for seven years, cash them in and get all the interest at once. Maybe that was their plan, with the high income they would keep them until maturity when they retired. The government said: "No, you cannot do that. You have to report the interest at least every three years".
As an accountant filling out income tax returns many times I had to tell people who had compound Canada savings bonds that they cashed in at maturity: "Wait a minute, you should have reported this three years ago". They said: "Well nobody told me". The Bank of Canada knew these people were holding compound bonds but it did not tell them they had to pay taxes.
When we finally make the adjustment we have to go back three years. The government says: "Fine, thank you very much and here is the interest owing because you are three years late in reporting". Is that the way for government to endear itself to the taxpayers?
I could go on. Time after time after time there is unneeded complexity which is useless and is there to basically generate more revenue through penalties, interest and other maintenance for the government. It feels that the taxpayer can be squeezed unceasingly.
My time is up. I could go on, but I think I have given some indication that reform is long overdue.