Federal budget fails to address tax competitiveness issue

By Susan Yellin | March 01 2018 09:45AM

Photo: Freepik

Some tax relief hopes were dashed in the latest federal budget, particularly as they pertain to challenges in keeping the country tax competitive, especially with our American neighbours. And that’s led some to speculate about the possibility of Canadians hightailing it south for better tax treatment.

“I would not be surprised to see in the next three to five years a significant brain drain especially when it comes to medical professionals,” said Aaron Schechter, a tax partner at Crowe Soberman LLP in Toronto.

Thinking of moving south

Schechter said he has received a number of phone calls in the past while from doctors who are seriously contemplating a move to the United States, where taxes are considerably lower.

A professional in Ontario, for example, will pay a top personal tax rate of about 53.5 per cent, while some American states have a top rate of only 37 per cent, said Tony Salgado, director, business transition planning with CIBC Financial Planning & Advice.

“I was hopeful that our competitive landscape as compared to our U.S. partners would lead to a lowering of tax [in Canada]. It didn’t happen,” said Salgado.

Had called for tax system review

Some groups, like the Investment Industry Association of Canada, had called for a comprehensive review of the Canadian tax system, a hope echoed by the Chartered Professional Accountants of Canada (CPA Canada).

“We operate in a global economy and uncertainty lingers, especially when faced by actions such as tax reform in the United States," says Bruce Ball, vice-president, tax at the CPA. “An independent, comprehensive tax review would greatly assist in creating a best-in-class tax system to generate jobs, attract investment and foster inclusive growth for the benefit of all Canadians.”

U.S. federal tax reforms

Ball noted that Finance Canada will conduct a detailed analysis of the U.S. federal tax reforms to see how this might affect Canadians. “This is an issue of immediate importance and more information on how this analysis will be carried out is needed.”  

While a higher tax rate in Canada could motivate some people to move outside the country, Salgado noted that personal taxes should not be the only motivating factor in moving south.

Departure tax

“Do you really want to live in the United States given the political climate and the lifestyle that comes with living in the United States as opposed to living in Canada? Another thing that people often forget about is the departure tax if you leave. Do you have any tax liability owing if you decide to pick up and leave our borders?”

RRSPs, TFSAs and a principal residence are exempt from the one-time departure tax, but most everything else will be deemed to have been sold, at fair market value, and capital gains will be levied.