Today, direct taxation is a course of action to build federal funds that has been in place for as long as most Canadians can remember. It has evolved from what was initially a ten-page statute to what is today over 2,500 pages and far too complex for the average Canadian to fully understand. Throughout the development of the Income Tax Act and the direct taxation system in Canada, the debt, which is the reason direct taxation was implemented, has also grown. Federal debt in Canada was less than $500 million at the time that the “War Tax Upon Income” bill was implemented and has grown to be over $630 billion and climbing today. Without a doubt, there will be debt and direct taxation as long we live, although this was not the intention at the time the system was implemented.
With the development of the Income Tax Act into the complex legislation it is today, there has also come the natural injection of politics. On August 4, 1914, the United Kingdom declared war on Germany. Canada became involved overseas in the First World War as part of the British Empire. Over the next three years Canadian resources were drained in order to provide support to their allies and to troops overseas. Income tax had been temporarily implemented long before the First World War in both the U.S.A and U.K. and by the start of World War 1, these nations had permanent taxes in place to support their war efforts. At the same time, the Canadian government had no intention of resorting to direct taxation; instead Canada implemented a system of taxes levied on specific goods and services to provide government funding. On July 25, 1917 this all changed. The Minister of Finance, Sir Thomas White, made a proposal for the “War Tax Upon Income” bill to be put in place because the existing tax system was not providing a sufficient level of financial support that was required for the War. The proposal for this bill was to provide a short-term resolution for Canada to aid in the financing of the requirements needed for World War 1. No specific length of time was specified as there was no clear indication of how long the War would last. Sir Thomas White’s proposal was to have the bill reviewed within one to two years after the end of the War in order to determine if it was viable and reasonable for Canada moving forward. The bill was not instituted as a permanent resolution to offset the debt of the country and, as such, the bill was named the “War Tax Upon Income” bill.
The initial bill implemented in 1917 taxed a limited portion of the Canadian population. With the end of World War 1 there was no end to direct taxation. The initial bill implemented in 1917 taxed a limited portion of the Canadian population. With the end of World War 1 there was no end to direct taxation. At each review of the system, its scope and complexity expanded such that more and more Canadians were subject to the requirement to pay taxes. There were changes over the next fifty years,but the largest tax reform came in 1966 with the Royal Commission on taxation known as the Carter Commission. The Carter Commission essentially stated that the current taxation system was unfair. It recommended that the Canadian tax system should undergo a significant overhaul to ensure a progressive taxation system in which the rich would not be able to shelter income and use exemptions in order to reduce taxes. Due to major opposition by wealthy individuals and companies, a number of the changes that were presented by the Carter Commission to eliminate special exemptions and incentives and allow the Income Tax Act to become a more progressive and fair system have never been put into action. The Carter Commission did allow for partial changes to be implemented that would allow for the system to make a move towards being more equitable within Canada. “A buck is a buck” was the statement that Kenneth Carter used to explain that, no matter how money is earned, it should be included in income in the same way as all other sources or types of income and taxed in a progressive system.
Without a doubt, there will be debt and direct taxation as long we live, although this was not the intention at the time the system was implemented.
As we celebrate the 150th birthday of Canada, we also celebrate the 100th anniversary of the implementation of direct taxation in Canada. Even with the temporary nature of Sir Thomas White’s bill in 1917, the direct taxation that was implemented to help aid in the financing of the First World War continues today. The initiation of the “War Tax Upon Income” bill came at a time when Canada was in need of additional resources, but Sir Thomas White recognized that Canada did not want to be recognized as a country of heavy taxation. It wanted to continue to be inviting to immigration and not have this be a hindrance on the world view of Canada by other countries. One hundred years later, Canada continues to build a strong diverse nation without the burden of heavy taxation affecting its international perception.
The Income Tax Act has come a long way from its start as a ten-page short-term solution, but it has never gone away and has established itself as a permanent fixture unlikely to ever be eliminated in the future.
On July 25, 1917 this all changed. The Minister of Finance, Sir Thomas White, made a proposal for the “War Tax Upon Income” bill to be put in place because the existing tax system was not providing a sufficient level of financial support that was required for the WarHowever, income tax is under continuous scrutiny and with the current Liberal government under Justin Trudeau currently evaluating the tax structure, additional changes in an attempt to make the tax system fairer are imminent. With the development of the Income Tax Act into the complex legislation it is today, there has also come the natural injection of politics. Political parties in power have introduced ‘boutique credits’ based on their respective governing strategy. This strategy is subjective in nature and can make taxes increasingly more complex and difficult to manage. It may reduce revenues to the government but, on the other hand, can potentially provide much needed tax credits to specific groups within Canada such as families or educators. These changes are often questioned as to their effectiveness and longevity, but to fully understand the different perspectives of tax reform as a whole, compare Canada’s approach to that of our neighbours south of the border. A very different government under Donald Trump is proposing to greatly reduce tax rates. Both countries continue to have massive growing debt, therefore requiring taxes to continue, but the subjective nature of creating an objective tax system is an ongoing issue as long as taxes are alive. There is no end in sight.