Powering the Future of Niagara
Taxation & Regulation
- Overhaul and simplify the Canadian tax system for the 21stcentury
Canada’s tax system, last comprehensively reviewed decades ago, is now uncompetitive, unwieldy, and unnecessarily complex. It predates the internet and e-commerce, the sharing economy, and artificial intelligence. Many of the world’s most developed economies—and some of Canada’s biggest trading partners— have implemented or pursued major tax reforms in recent years. The current changing global tax environment not only provides an excellent opportunity for Canada to rethink its own system, but practically requires it. In order to remain competitive with our global competitors and compatible with our global partners, to simplify the tax code for individuals and businesses alike, and to promote tax fairness, a comprehensive reform of the Canadian tax code is strongly recommended. We suggest that a Royal Commission would be one way to accomplish this, but not that it is the only way. Comprehensive tax reform is necessary and timely, and the Chamber network has broadly committed to assisting in it in whatever ways are possible.
- Promote tourism and visitor spending by reinstating the visitor rebate program
The visitor tax rebate was an important component in promoting tourism, allowing visitors to claim the GST/HST paid on goods, encouraging them to spend more during their stay in Canada. Canada was the first and, so far, the only OECD country to have canceled their visitor rebate program, and currently, it is the only OECD country with a federal sales tax that does not provide a visitor rebate. The Retail Council of Canada estimates that the cancellation of the program resulted in a GDP loss of $595.7 million per year. Increased tax revenue from ending the program does not compensate for the loss in revenue from decreased spending, resulting in an annual $51.6 million net loss of government revenue. The economic effects of the cancelation are most profoundly felt in tourist hotspots such as Niagara, where as many as one in ten jobs may depend on tourism. Reinstating the visitor rebate program would provide an immediate and substantial boost not only to the economy of the Niagara region, but to all of Canada. We recommend that the visitor tax rebate be reinstated immediately.
- Reduce the regulatory burden and increase Canada’s global competitiveness by reviewing the GST/HST filing threshold
Small businesses, lacking dedicated accounting and financial staff, face a disproportionate burden in collecting and reporting GST/HST. Previous governments have recognized that fact by setting a filing threshold for small businesses, below which GST/HST collection and reporting was not required. However, that threshold was introduced in 1991, set at $30,000, and never adjusted. If it had kept pace with inflation, it would be $45,000 today. Equivalent thresholds in our peer Commonwealth countries of New Zealand, Australia, and the UK, converted to Canadian dollars, are $50,100, $74,900, and $114,000 respectively. The GST/HST threshold should be increased to a level in keeping with Canadian peer countries, and thereafter indexed to inflation to ensure our small businesses can remain competitive.
- Plan deficit spending and debt repayment around the business cycle by tying expenditure and debt levels to vital economic indicators
The annual budget constrains economic thinking in many ways. One of these is around debt and deficit, and conversations often focus either exclusively on the short-term or on an arbitrary point in the future. The Government of Canada must recognize that our indebtedness and our ability to repay debt are tied to the economy, and that revenues and expenditures both depend enormously on economic growth (or the lack thereof). Indebtedness that is not repaid before a recession deprives the government of an important policy tool: the ability to provide economic stimulus from deficit spending. Canada should tie its fiscal plans to economic indicators and the recessionary business cycle, rather than to arbitrary calendar dates. Future budgets should contain plans to return expenditures to balance within the average length of a business cycle, and new government debt should be accompanied by a plan to repay that debt before the next recession can reasonably be anticipated.
- Repeal new taxes on alcoholic beverages
Canadians pay some of the highest taxes on alcohol in the world. The excise duty on wine has been increased ten times since 1980, from $0.35 to $0.63 per litre, while the excise rate is only $0.375 in the US, $0.07 in France, and $0.00 in Germany. The Government of Canada recently introduced an escalator tax which effectively mandates that this already-high tax burden will continue to grow in the future, without the opportunity for review or for Parliamentary discussion. The Canadian wine industry employs 37,000 people and pays $1.7-billion in wages; these jobs are being put at risk when already-high excise taxes are raised still further and potentially without limit. The annual excise tax escalator should be repealed immediately.
- Remove the tax barriers to keeping family businesses in the family
Measures such as the Lifetime Capital Gains Exemption (LCGE) aim to assist small-business-owners in turning their businesses into retirement incomes, but while 41% of business-owners plan to exit their business by 2022, only 10% have a succession plan in place. Current legislation penalizes business-owners who wish to sell or pass on their firms to family members in preference to strangers. We recommend that the LCGE exemption be raised to $1-million, and that the Federal Income Tax Act be revised such that the sale of a business to a family member is treated and taxed no differently than a sale to an arm’s-length purchaser.
Environment & Social Well-Being
- Adopt a comprehensive and effective climate change strategy
The effects of climate change are already being felt by businesses in Niagara and across Canada. Niagara has recently seen harsh winters and droughts which have affected our agri-food industry, and in between them, record levels of flooding that have caused damage and reduced revenues and growth. Extreme weather events such as ice storms or high winds are expensive to the financial industry and cause productivity losses across the entire economy. The causal link between climate change and extreme weather is well-established and extensively documented. Protecting the future of Canadian business means combating climate change through a comprehensive and multi-pronged program which, if applied correctly, could also function as an economic stimulus. Examples might include building renovation credits for energy efficiency, more electric vehicle incentives, further investment in renewable energy generation, or incentives to manufacturers using more recycled and recyclable material. There are many more potential options. Canada should put businesses and citizens to work in service of our environment and the fight against climate change with all due haste.
- Lift GST on rental housing builds
Niagara has an affordable housing crisis, and it is by no means alone or the worst in Canada. Affordable housing generally means rental housing, yet homebuilders prefer to build for sale for reasons of simple economics: sale enables a builder to recoup their investment immediately, whereas a rental property might take ten years or more to repay the initial outlay. Section 191 of the Excise Tax Act requires builders to pay GST on their costs to build or substantially renovate rental housing units. The construction or renovation of rental housing should be made GST-exempt to incentivize the building and renovation of more rental housing stock for Canadians.
- Decrease commuting and enable more Canadians to work where they live through incentives and rebates
Commuting increases the burdens on our highways, our public transit systems, and the climate. It increases the number of accidents on our roads and robs Canadians of family and leisure time. These effects are especially marked in regions such as Niagara, situated in commuting distance of major urban conurbations. As the GTHA continues to grow and as transit networks such as the GO train continue to extend, smaller communities such as those in Niagara will increasingly become the residences of commuters, increasing the load on our infrastructure, our time, and our environment. Homeworking can reduce the burden of traffic on metropolises like Toronto while diversifying the economies and broadening the tax bases of communities like Niagara, but current legislation allows expenses on home workspaces to be deducted only if at least 50% of working hours are spent there and if the space is exclusively used to earn income. Programs to extend broadband to rural areas are making homeworking feasible, but it must also be financially rewarding. We propose that the 50%-of-working-hours threshold be lowered substantially and the requirement for an exclusive homeworking space be eliminated.
Technology & Innovation
- Review Canada’s innovation and research strategy
Canada has fallen behind in research and technology. We rank 22ndin the world in capacity for innovation, 22ndin technological readiness, and 27thin company spending on R&D. Canada’s R&D spending as a percentage of GDP has been declining for over a decade and is now 1.69%, compared to the OECD average of 2.4%. An innovation and research strategy to put Canada back on top must include the public and the private sectors, and a comprehensive review with a variety of solutions should be considered. A simplified SR&ED (Scientific Research and Experimental Development) program might be one option, as might a review of intellectual property regimes or allowing patent filing costs to be classified as an asset which can be borrowed against, both of which would make private-sector research more accessible and more commercially rewarding. Investment in public sector research is welcome and could be bolstered by further investment in knowledge translation and bringing public sector research to market.
- Designate a Minister of Technology and a ministry to oversee and regulate the application of technology for growth and prosperity
New technologies and technology companies offer vast promise for commerce and trade, more efficient government services, better medicine, safer roads, and a plethora of other applications, some of which are as yet undreamt-of. Unfortunately, as we have recently seen, they can also be exploited by bad actors, criminals, and foreign agents who seek to erode privacy, harass or defraud individuals and organizations, and even to subvert democracy. Maximizing the benefits of new technology while safeguarding Canadians against their abuse is a challenging policy goal, and one that requires a dedicated ministry. We recommend that Canada take a proactive stance on this issue by designating a Minister of Technology in the cabinet and empowering that individual and their team to enact policies which will safeguard Canadian individuals, organizations, and businesses while allowing Canada to reap the benefits of new technology.