Personal tax season is over, and the Conservatives have won a majority government in Canada. Now seems like an appropriate time for me to add my two cents worth of advice on reforming the tax system in Canada.

The Income Tax Act currently exceeds 2,000 pages. And with every new tax credit, and every new revision to limit loopholes created by previous tax measures, the Act continually expands. No one can possibly understand the complexity inherent in the Act today, although there are experts in various parts of the Act. I am sure that the complexity creates no value for the country as a whole; although it does reward handsomely the tax experts who find new ways to circumvent the Act and reduce the tax liabilities of their clients. The more successful the experts, the more future revisions we can expect.

I believe the time has long past for the federal government to take the ax to the Income Tax Act, and greatly reduce its scale. My proposals, which most likely will never be enacted because they threaten too many vested interests who have long lived off of the Act, probably could reduce the size of the Act to less than 10 pages.

I start with corporate taxation. As I have argued in several previous blogs, this tax should be abolished altogether. In its place we should substitute a withholding tax of 15% to 20% on all transfers out of Canada. The withholding tax proposal likely would create the greatest degree of complexity since there might be good reasons to exclude certain types of transfers or payments; for example, for consulting or other professional services. While I favor simplicity and no exemptions, I am willing to leave the question of exemptions to a debate.

In the case of personal taxation, I favor, of course, a flat tax. All income should be treated the same (e.e., no preferential treatment for capital gains or dividends), and every taxpayer should deduct a fixed amount against her/his total income and pay a rate of 15% to 20% on the remaining net income. All tax credits should be eliminated (e.g. RRSPs, RSPs, charity donations, political party contributions, GST, education expenses, medical expenses, public transit, children’s fitness, employer-sponsored medical care, union dues, etc., etc.). As well, capital gains on the sales of primary residences should be included in gross taxable income.

There is room for debate over the tax rate and annual deductions. There also is room for debate about whether there should be two tax rates and income thresholds in order to maintain some degree of progressivity in the system. However, there should be no debate whatsoever on what is included in gross taxable income – everything should be included.

If there are certain initiatives worth supporting by the federal government, they should be supported by grants so that their costs would be transparent, and subject to annual review by the government.

Finally, if there is a need for additional tax revenues for the federal government, the GST could be maintained. However, it should be integrated with provincial sales taxes into the infamous harmonized tax, and be levied solely on consumers. There should be no exemptions. These changes would greatly reduce the paperwork inherent in the current system and further contribute to tax simplification.

In my next blog I will take a look at federal government expenditures.

The opinions expressed in this blog are personal and do not reflect the views of either Global Brief or the Glendon School of Public and International Affairs.