‘Shadow System' Of Tax Breaks For The Rich Costs Canada Billions: Study

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Canada’s income tax deductions are helping make the rich richer, a new study has concluded.

The research paper released Monday by the Canadian Centre for Policy Alternatives (CCPA) says breaks on personal income taxes in Canada cost almost as much as the government collects from those taxes, and they disproportionately benefit the rich.

“In essence, there are two federal transfer systems in Canada: one for the poor and middle class and another shadow system for the rich,” CCPA senior economist David Macdonald said in a statement.

income tax form canada
A T1 General 2010 tax form is pictured in Toronto on April 13, 2011. (Photo: The Canadian Press/Chris Young)

The “one for the poor and middle class” is the country’s social safety net, including the Canada Pension Plan, Employment Insurance, Old Age Security, the GIS, the GST credit and child tax benefits. That system cost Canada $113 billion in 2011.

But that year the country passed over nearly as much in revenue — $103 billion — to tax breaks, most of which favour higher earners.

The research paper calculated that, of the 64 income tax deductions available in Canada, 59 of them put more money in the pockets of the top half of earners than they do in the pockets of the bottom half, and the richest 10 per cent get “the largest share,” the report said.

Click for full size.
tax deduction benefits
Chart: Canadian Centre for Policy Alternatives

Only five deductions give lower earners more money than higher earners, and only one — the Working Income Tax Benefit — “exclusively” helps the working poor, the report said.

In 2011, 39 per cent of the money that the government returned in deductions went to the richest one-tenth of earners, while the poorest one-tenth got 16 per cent of the money, the report found.

“The five worst tax loopholes all provide 99 per cent or more of their benefit to the richest half of Canadians and cost the government $10.4 billion in 2011,” Macdonald said.

“If those loopholes were closed, the government could use that money to eliminate university tuition and create an affordable national child care program.”

The CCPA study recommends that the government end the “most regressive” deductions, meaning those that benefit the wealthy the most.

But it says the government should do so slowly, reducing the tax breaks by about 5 per cent per year, adding some $5.1 billion in revenue annually.

It also says the government should start treating tax breaks like expenses, and report them as a cost in the annual budget and fiscal updates.

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