Canada’s tax system isn’t equitable for families and needs to be overhauled, a study from Raymond Chabot Grant Thornton and the Université du Québec à Montréal’s says.
In more than 70% of the situations studied, tax rules weren’t neutral, the study found, with rules favouring certain families depending on the make-up, the couple’s legal status and economic class, the study says. It recommends the federal and Quebec governments review family taxation rules and change policies that undermine the tax system’s equity.
Current tax rules can affect how a family saves money, the study says, as savings plans such as the TFSA, RRSP, RESP and RDSP have different tax rules and incentives.
“As a result of these differences, families with limited cash resources are faced with choosing from amongst the alternative savings plans available,” said Luc Lacombe, one of the authors of the study, in a statement.
“If they take into consideration tax rules, their decision-making process may lead them to favour alternatives that are to the detriment of their real savings needs thus limiting their financial flexibility.”
The study examined whether tax rules were neutral for families in areas including housing, children’s education, retirement savings, and economic well-being.
For families who own businesses, the study found tax rules aren’t neutral when it comes to transferring a business, a person’s decision to go into business and the couple’s legal status.
To make the system more equitable, the study suggests:
- changing the system to be based on family income rather than an individual’s income;
- changing the tax rate structure to be based on family size;
- creating a registered general savings plan;
- revising the “termination dates” for common-law relationships and marriages;
- raising the age of children considered to dependent;
- allowing for a rollover upon a taxpayer’s death to a trust set up exclusively for a dependent child, and;
- allowing for an eligibility for a capital gains deduction upon the transfer of a business.
Read the study here.