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When it comes to tax debts, there’s usually no such thing as an honest mistake.
It’s certainly possible that a taxpayer can make a good-faith error. It’s just that Ottawa usually doesn’t care all that much. A mistake, even an honest one? Please pay up. An error based on incorrect information from the government? Sorry about that. Now, please pay up.
Exceptions to that rule have been rare, and usually limited to waiving interest and penalties, not the underlying debt, a theme that this week’s Tax and Spend explores. Rare that is, until last week, when the Liberal government reversed course, and announced that self-employed individuals who had wrongly obtained up to $14,000 under the Canada Emergency Response Benefit could keep those payments.
At issue was confusion over what qualified to meet the CERB requirement of at least $5,000 in income. In the early days of the pandemic, the Canada Revenue Agency told some applicants that gross business income (before deducting expenses) could be used. Later, the CRA made it clear that net income had to be used, leaving some short of the mark – and on the receiving end of letters asking them either to demonstrate their eligibility or to repay benefits.
The government has veered away from those repayment demands, instead saying self-employed recipients could keep their CERB funds, so long as they met all other criteria. For those individuals, at least, an honest mistake led to a rare act of fiscal forgiveness.
Taxing questions
Responding to last week’s piece on the outlook for Alberta’s corporate taxes, Patrick DeRochie tweeted that more than just the growing pessimism about the future profitability of the province’s oil and gas sector was at play: “Also important to note that the provincial government made it an urgent priority in 2019 to reduce corporate tax rates,” he wrote.
Mr. DeRochie is correct, of course. Premier Jason Kenney did campaign on lower corporate tax rates, not just reversing hikes under the previous NDP government but cutting them further to just 8 per cent by 2022. Faced with the economic turmoil from the coronavirus, Mr. Kenney accelerated that plan, with the 8-per-cent rate put in place as of July 1, 2020, a year and a half ahead of schedule.
What’s been the effect of the cuts? Certainly, revenue declined in the first fiscal year in which rates were cut. And the government has said that lower corporate tax rates will cost the treasury hundreds of millions of dollars a year, with costs rising this year and next because of the accelerated reductions. But the UCP government has argued that the lower rate will generate investment and tax revenue in the longer term. (The effect of the rate cuts are somewhat muted in the current economic environment, since corporate profits have dwindled.)
The reality is, corporate tax revenue is heavily influenced by external forces – including the broader economy, and tax rates in other jurisdictions, particularly the United States. For confirmation, look no further than what happened after the NDP raised the corporate tax rate in July, 2015. Even with the rate increase, Alberta’s corporate tax revenue declined in that fiscal year, and the two that followed.
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Heading into the coronavirus crisis, Canada’s economic performance was weaker than in the four prerecessionary periods of the past four decades, contends a new report from the Fraser Institute. The authors compare income, employment and business investment trends in the 1986-1989, 1997-2000, 2005-2008, 2011-2014, and 2016-2019 time periods. Business investment was clearly weaker between 2016 to 2019, they write, than in earlier time periods, particularly in the 1980s and 1990s.
The picture is much the same for income, with most measures pointing to the Chrétien years of 1997-2000 as a high-water mark of prosperity. On employment, the Trudeau government appears to outperform, with unemployment rates lower than in earlier periods. But the Fraser report argues that much of that advantage is due to lower labour-force participation. If participation rates had not declined, the unemployment picture for 2016 to 2019 would have been worse, not better, than in previous prerecessionary periods, it says.
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