{"id":243,"date":"2016-04-13T21:56:30","date_gmt":"2016-04-14T04:56:30","guid":{"rendered":"https:\/\/blogs.ubc.ca\/kevinmilligan\/?p=243"},"modified":"2016-04-13T21:56:30","modified_gmt":"2016-04-14T04:56:30","slug":"notes-for-fina-april-14th-2016","status":"publish","type":"post","link":"https:\/\/blogs.ubc.ca\/kevinmilligan\/2016\/04\/13\/notes-for-fina-april-14th-2016\/","title":{"rendered":"Notes for FINA, April 14th 2016"},"content":{"rendered":"

Professor Kevin Milligan, UBC Vancouver School of Economics<\/p>\n

Draft Comments to House of Commons Finance Committee<\/p>\n

Delivered by Videoconference<\/p>\n

April 14, 2016<\/p>\n

Noon EDT \/ 9am PDT<\/p>\n

Thank you for the invitation to comment on Bill C-2. I would like to make two brief points on the new 33% tax bracket and its impact on tax planning and avoidance.<\/p>\n

First<\/strong>, I\u2019d like to emphasize the importance of the federal-provincial angle. In a federation like Canada, it is more difficult to tax mobile economic factors at the provincial<\/u> level. For example, if a province tries to tax high earners, some of that income may shift to other provinces through use of financial and accounting techniques\u2014an example is the Alberta Family Trust into which a high-earner from another province can shift assets that are then taxed at Alberta\u2019s lower rates.<\/p>\n

On the other hand, at the federal level it is harder to avoid taxation because shifting income out of the country is harder than shifting between provinces within the country.<\/p>\n

In research with Michael Smart from the University of Toronto, we found that high-income taxpayers are much less likely to shift their income in response to a federal<\/u> tax change than they are to a provincial<\/u> tax change. So, when looking at the revenue implications of a new high income tax bracket, the revenue expectations at the federal level should be higher than at the provincial level.<\/p>\n

My second point <\/strong>is that enhanced administrative measures are critical to combat tax planning and avoidance. If the CRA makes it harder for individuals to engage in tax planning, the new 33% bracket is more likely to reach its revenue targets.<\/p>\n

The government has already announced several measures that move in that direction, including a change in the recent budget in the definition of active vs. passive income for small-business corporations and also new enforcement programs to be introduced by the CRA.<\/p>\n

But I believe there is still more to do.<\/p>\n