Fifteen-plus years of BC mortgage experience, distilled into practical writing on buying, renewing, refinancing, and building wealth through real estate.
Seven areas Canada's tax experts want reformed and the trade-offs each one carries
The Income Tax Act has grown from 11 pages in 1917 to over 3,000 pages today. Every added page makes compliance harder, erodes productivity, and gives well-resourced taxpayers ways to reduce their bills that aren't available to wage earners. When Ottawa says reform is coming, here's what tax professionals want fixed, and what we'd lose in the process.
Capital Gains Treatment
Raise the inclusion rate permanently or scrap preferential treatment entirely. Right now, all taxpayers pay tax on 50% of capital gains. The proposed two-tier system with a $250,000 threshold and 66.7% rate above it was cancelled in March 2025 and never took effect. The Carter Commission's "a buck is a buck" principle argued that income from all sources should be taxed equally. Defenders of the current system say lower rates encourage investment and risk-taking. The trade-off: closing the gap raises revenue and improves vertical equity, but it could dampen entrepreneurship and send mobile capital to jurisdictions with lower rates.
Small Business Tax Cliffs
Flatten or extend the phase-out for the small business deduction. The first $500,000 of active business income is federally taxed at 9%. Income above that jumps to 15%. That 6-point cliff punishes growth. A company earning $499,000 keeps significantly more after-tax dollars than one earning $510,000, which creates a perverse incentive to stay small. Smoothing the transition or raising the threshold to $750,000 would help mid-sized firms scale. The trade-off: it costs the federal treasury billions and benefits business owners, not workers.
Boutique Tax Credits
Kill most of them. Canada's tax code is littered with narrow credits: fitness for kids, digital news subscriptions, volunteer firefighters, adoption expenses. Each one requires separate compliance, tracking, and CRA administration. Together, they represent billions in foregone revenue and impose significant administrative costs on both taxpayers and the CRA. Scrapping them and redirecting even half that amount into lower marginal rates or higher basic personal exemptions would simplify filing and deliver broader benefits. The trade-off: every boutique credit has a constituency. Removing them is politically toxic even when economically sound.
Corporate Tax Integration
Fix the system so income taxed inside a corporation isn't taxed again when distributed. Right now, dividend gross-up and credit mechanisms are supposed to achieve integration, but they break down at higher income levels and across provincial borders. A business owner in one province can face a combined tax rate 8 points higher than an equivalent owner in another. True integration would mean the same total tax whether income is earned personally or corporately. The trade-off: getting it right requires federal-provincial coordination that hasn't existed since 1971, and any fix will create new winners and losers.
Alternative Minimum Tax
Scrap it or make it genuinely apply only to the top 1%. The 2024 AMT changes raised the rate from 15% to 20.5% and widened the base, but the AMT still catches people it was never designed for: retirees who sell a cottage, employees exercising stock options, people with legitimate business losses. It's a second tax system layered on top of the first. Removing it simplifies the code. The trade-off: without it, some high-income earners using aggressive planning would pay nearly nothing, which undermines public trust.
Provincial Harmonization
Align brackets and credits nationally. Right now, every province sets its own rates, thresholds, and credits. A federal change ripples differently across the country, complicating analysis and creating inequities. A national framework with provincial opt-ins would reduce compliance costs for businesses operating in multiple provinces. The trade-off: provinces would lose fiscal autonomy, and harmonization requires unanimous consent that doesn't exist.
Digital Modernization at CRA
Rebuild the enforcement and filing infrastructure from scratch. The CRA's IT systems were built for a 1,000-page act. They can't handle the current code efficiently, which is why audits take years and why the tax gap persists. A modern, API-driven system could allow real-time verification and automated compliance for most filers. The trade-off: it would cost tens of billions upfront, require years of development, and create privacy concerns around data access.
Reform isn't just about fairness. It's about whether Canada can administer the system it already has.
The Income Tax Act has grown from 11 pages in 1917 to over 3,000 pages today. Every added page makes compliance harder, erodes productivity, and gives well-resourced taxpayers ways to reduce their bills that aren't available to wage earners. When Ottawa says reform is coming, here's what tax professionals want fixed, and what we'd lose in the process.
Capital Gains Treatment
Raise the inclusion rate permanently or scrap preferential treatment entirely. Right now, all taxpayers pay tax on 50% of capital gains. The proposed two-tier system with a $250,000 threshold and 66.7% rate above it was cancelled in March 2025 and never took effect. The Carter Commission's "a buck is a buck" principle argued that income from all sources should be taxed equally. Defenders of the current system say lower rates encourage investment and risk-taking. The trade-off: closing the gap raises revenue and improves vertical equity, but it could dampen entrepreneurship and send mobile capital to jurisdictions with lower rates.
Small Business Tax Cliffs
Flatten or extend the phase-out for the small business deduction. The first $500,000 of active business income is federally taxed at 9%. Income above that jumps to 15%. That 6-point cliff punishes growth. A company earning $499,000 keeps significantly more after-tax dollars than one earning $510,000, which creates a perverse incentive to stay small. Smoothing the transition or raising the threshold to $750,000 would help mid-sized firms scale. The trade-off: it costs the federal treasury billions and benefits business owners, not workers.
Boutique Tax Credits
Kill most of them. Canada's tax code is littered with narrow credits: fitness for kids, digital news subscriptions, volunteer firefighters, adoption expenses. Each one requires separate compliance, tracking, and CRA administration. Together, they represent billions in foregone revenue and impose significant administrative costs on both taxpayers and the CRA. Scrapping them and redirecting even half that amount into lower marginal rates or higher basic personal exemptions would simplify filing and deliver broader benefits. The trade-off: every boutique credit has a constituency. Removing them is politically toxic even when economically sound.
Corporate Tax Integration
Fix the system so income taxed inside a corporation isn't taxed again when distributed. Right now, dividend gross-up and credit mechanisms are supposed to achieve integration, but they break down at higher income levels and across provincial borders. A business owner in one province can face a combined tax rate 8 points higher than an equivalent owner in another. True integration would mean the same total tax whether income is earned personally or corporately. The trade-off: getting it right requires federal-provincial coordination that hasn't existed since 1971, and any fix will create new winners and losers.
Alternative Minimum Tax
Scrap it or make it genuinely apply only to the top 1%. The 2024 AMT changes raised the rate from 15% to 20.5% and widened the base, but the AMT still catches people it was never designed for: retirees who sell a cottage, employees exercising stock options, people with legitimate business losses. It's a second tax system layered on top of the first. Removing it simplifies the code. The trade-off: without it, some high-income earners using aggressive planning would pay nearly nothing, which undermines public trust.
Provincial Harmonization
Align brackets and credits nationally. Right now, every province sets its own rates, thresholds, and credits. A federal change ripples differently across the country, complicating analysis and creating inequities. A national framework with provincial opt-ins would reduce compliance costs for businesses operating in multiple provinces. The trade-off: provinces would lose fiscal autonomy, and harmonization requires unanimous consent that doesn't exist.
Digital Modernization at CRA
Rebuild the enforcement and filing infrastructure from scratch. The CRA's IT systems were built for a 1,000-page act. They can't handle the current code efficiently, which is why audits take years and why the tax gap persists. A modern, API-driven system could allow real-time verification and automated compliance for most filers. The trade-off: it would cost tens of billions upfront, require years of development, and create privacy concerns around data access.
Reform isn't just about fairness. It's about whether Canada can administer the system it already has.
Sources
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