Corporate Tax = Double Tax

September 18, 2005 · Posted in Conservatism.ca 

Recently, the B.C. Government announced a “corporate tax” reduction from 13.5% to 12%.

Corporate “income tax” is a flawed form of double-taxation. If you have income tax on individuals, they should pay income tax on their dividends from corporations. If corporations also pay tax on their “income” before distributing it to shareholders, this is double-taxation of the same income. It has led to many tax system perversions like amending the taxation rates on the type of income people receive, depending on whether it was payroll, interest or dividends.

Right now Canadian corporations are tripping over each other in a race to convert to “Income Trusts” because corporate income tax is such a flawed concept.

Imagine how much simpler taxation would be if all personal income was taxed at the same rate, and corporate tax, capital taxes, sales/consumption taxes, inheritance taxes, and capital gains taxes were eliminated.

I know some people seem to like consumption taxes. I actually don’t disagree that a hotel tax or a restaurant tax is an OK form of consumption tax (and one which studies have shown is not a disincentive to tourism). However, as a business owner, and as somebody who sells things throughout the world on the Internet, I can tell you the GST is a huge burden and a competitive disadvantage for e-commerce, and specifically selling to U.S. customers online (like being in Canada and having higher shipping, customs and duties wasn’t enough of a disadvantage already).

Some might say … “but what if the shareholders of a corporation all lived in Mumbai, Kuala Lumpur, or somewhere more exotic — like Ontario.” Then having those corporations here wouldn’t give us any income at all, right? Wrong! The corporation will still employ people who live here, and all those people will pay income tax. More corpoations would move here, creating more jobs and more personal income tax for the Government.

So, reducing a backward form of double-taxation from 13.5% to 12% is still 12% too high. But at least it’s a step in the right direction.

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Comments

  • Michael

    Umm. If you are charging GST to foreign customers, you may be doing something wrong. The GST does not apply to exports…and under the NAFTA, non-Canadian citizens are entitled to rebates. I worked in a hotel during the 90s and every American that checked in was given an application form they could fill out to get reimbursed for the GST they paid while in Canada.