"Boutique" tax credits have proliferated over the past few decades and include credits for everything from public transit passes to first-time homebuyers to the newly introduced credit for teachers' classroom supplies. But the federal government is making it clear that its plans to review these tax credits and simplify the tax system is just getting underway. As a result, it's worthwhile for financial advisors to be aware of the latest developments in this area and how they impact your clients.
For example, this year will mark the final time Canadians can claim four such "boutique" tax credits: the children's fitness credit, the children's arts credit, the education credit for post-secondary education and the textbook credit.
In late October, the House of Commons Standing Committee on Finance issued its report entitled, The Canada Revenue Agency, Tax Avoidance and Tax Evasion: Recommended Actions. The report was the result of hearings conducted in May and June in which Minister of National Revenue Diane Lebouthillier, officials from the Canada Revenue Agency (CRA) and from the Department of Justice, among other witnesses, were asked to appear before the committee "to provide the steps being taken by the Agency to combat tax evasion and tax avoidance."
This announcement follows up on a promise made shortly after the 2016 federal budget in which Finance Minister Bill Morneau told the Canadian Press in a roundtable interview that he was "going to embark on looking at the tax expenditures in the code and making sure they are all consistent with our approach to tax fairness."
"Tax expenditures" describes government spending, administered via the tax system, often in the form of credits, that's used to promote certain programs, such as the arts, physical fitness or post-secondary education, or that target certain segments of the population, such as parents, seniors or pensioners.
The Standing Committee called on the government in its report to "accelerate its review of the Income Tax Act and expeditiously implement initiatives aimed at simplifying the income tax system" as complexity and inequities can distort behaviour and can lead to tax avoidance or tax evasion. The committee was told that this review should be completed by June 30, 2017.
Joy Thomas, president and CEO of CPA Canada, who participated in the hearings, welcomes the recommendation: "CPA Canada has long called for the simplification of the tax code to assist taxpayers with compliance."
All of us — from advisors to our clients — could benefit from a simpler income tax system.