A tax hike on Canada’s wealthiest tax filers, affecting less than 26,000 people, will generate less revenue than what the federal government expected, according to a report by the Parliamentary Budget Office (PBO).
“Typically, when there are changes to the tax system, some affected individuals change their behaviour to minimize the amount of tax they pay,”
said the report, titled “Changes to the Alternative Minimum Tax as Proposed in Budget 2023,” as first covered by Blacklock’s Reporter.
“This is especially true of higher-income individuals, who likely have access to professionals who help them minimize their taxes.”
Effective Jan. 1, 2024, the federal government will raise the Alternative Minimum Tax (AMT) from its current
15 percent to 20.5 percent. The tax, which was introduced in 1986, was designed to ensure high-income earners, typically those making $250,000 or more per year, do not pay a “disproportionately small amount” of tax as a result of
tax incentives, including claims for certain deductions and credits.
“The government’s calculations predict that the changes would increase AMT revenue by $3.0 billion over the 2024–2028 taxation years,” said the report, published on
Sept. 7. “PBO estimates that the net revenue from these changes will be $2.6 billion over five years.”
According to the PBO, about 69,000 individuals would have been subjected to the AMT in 2024 if the new rate had not been proposed in Budget 2023. With the new rule, the number will drop to 25,698 due to “behavioural change.”
“Behavioural changes may include changing the timing or extent of asset sales or claiming credits or deductions,” analysts wrote.
‘To Ensure Compliance’
This is the first time Ottawa has raised the AMT rate since its introduction nearly four decades ago. Prior to this move, the Liberal government had also introduced a string of tax measures to target high-income taxpayers.Last September, the Trudeau government levied a 10 percent
luxury tax on certain automobiles and aircraft (priced above $100,000) and certain boats (priced above $250,000) purchased for personal use.
In a
May 2021 report, the PBO estimated that the luxury tax would generate $663 million in revenue for the government from 2021 to 2026.
In April 2022, Ottawa also introduced new taxes on banks and insurers, raising their corporate tax rate from
15 to 16.5 percent, in an attempt to generate approximately
$2.25 billion over the next five years.
The Commons finance committee, in a March report, recommended a series of tax measures to “close the growing income gap” among Canadians. “[G]enerate revenue to fund poverty reduction programs by closing tax loopholes,” said the report, titled “
Responding To The Challenges of Our Time.”
“Further increase funding for the Canada Revenue Agency to ensure compliance by the wealthiest individuals and largest corporations,” it said.
A study conducted by the Bank of Canada in 2022 indicated that income inequality is not, in fact, growing in the country.
“Data show that income inequality in Canada increased substantially during the 1980s and first half of the 1990s but has been relatively stable over the past 25 years,” the central bank said.
