May 2007 Archives

Abusive tax schemes tackled by international tax administrations

The Canada Revenue Agency has issued a news release concerning the addition of Japan to the Joint International Tax Shelter Information Centre (JITSIC).

According to the news release, "the JITSIC was formed by the tax administrations of Australia, Canada, the United Kingdom, and the United States in 2004 to address a number of common challenges with respect to abusive tax activities."

"The inclusion of Japan and the opening of the London Centre are both part of the JITSIC's plans for a measured expansion to cover North America, Europe and Asia."

According to the CRA, the objectives of the JITSIC are:

To increase public awareness of the risks associated with abusive tax schemes;
To recommend changes in tax administration practices for addressing abusive tax schemes;
To enhance enforcement efforts through coordinated “real time” exchanges of tax information;
To use Internet and other techniques to track and identify promoters/users of tax schemes;
To identify emerging trends in anticipation of the evolution of abusive tax schemes; and
To improve members' knowledge of techniques used to promote cross border abusive tax schemes.

"Canada's participation in the JITSIC is producing real results. For example, in the summer of 2006, the exchange of information between the CRA and the Internal Revenue Service of the United States led to the unraveling of an abusive cross-border tax scheme involving hundreds of taxpayers and tens of millions of dollars in improper deductions and unreported income. The number of information exchanges has been steadily increasing. While the confidentiality provisions of the Income Tax Act preclude the release of any taxpayer specific information, Canada has had some 280 exchanges of information with JITSIC countries, involving issues such as financial products, tax shelters and offshore trusts. As collaboration between member countries continues to grow, more cross-border schemes will be uncovered, shared and addressed."

For more information on this news release, please see the CRA web site at:
http://www.cra-arc.gc.ca/newsroom/releases/2007/may/nr070523-e.html

It's Gas Tax Honesty Day! 1/3 of pump price is tax

CTF welcomes new data showing federal roadway spending is up.

Taxpayers Federation repeats call for gas tax cut of 5 cents/litre.

Conservative Government silent on gas tax relief promises.

Ottawa: The Canadian Taxpayers Federation (CTF) today launched its 9th annual Gas Tax Honesty Campaign, marking Gas Tax Honesty Day. The yearly campaign kicks off the summer travel season for Canadian motorists. It is also the day of the year that Canadian motorists are reminded of the high tax component hidden in the price of gasoline.

CTF directors held press conferences at six gas stations across the country this morning to talk about government tax gouging. Afterwards, a handful of customers were refunded the tax component of their pump purchase by the CTF as a way to highlight the heavy tax load on gasoline.

Over the past 12 months – the period of May 2006 to April 2007 – the average cost of a litre of gasoline paid by Canadian motorists was approximately 99.2 cents. Gasoline taxes account for an average 33% of the pump price. In the past two years, the average national price of gasoline has increased by over 14 cents.

"Ottawa will collect approximately $5.2-billion in direct gasoline and diesel taxes this year. Another $1.5-billion will come from the GST,” said federal director John Williamson. “The good news is Ottawa will spend $1.8-billion or 36% of its gas and diesel tax revenue on roads and highway infrastructure this year. The amount will increase to over 52% within 2 years when roadway spending is expected to top $2.6-billion. This level of spending exceeds the 50% target first advocated by the CTF in 2002. Three years ago the federal government spent only 7% of direct gas tax revenues on roads making the boost an impressive turnabout. This is a partial victory for motorists and to complete it, gas taxes need to be lower.”

The CTF is calling on Ottawa to eliminate the 1.5 cent/litre “deficit elimination tax” as a first step (see details, below); stop taxing taxes by removing the GST (and HST where applicable) charged on federal and provincial gas taxes; and reduce the federal levy an additional 2 cents. These three measures would reduce the gas tax bite by 5 cents a litre and are, in part, consistent with what Stephen Harper promised in Opposition. To date, the CTF has delivered more than 150,000 petitions to Parliament Hill demanding lower and dedicated gas taxes.

The CTF began its Gas Tax Honesty Campaign in 1999 to inform Canadians of the gasoline taxes they pay at the pumps, to ensure gasoline taxes are dedicated toward roads, and to pressure Ottawa to cut gasoline taxes not spent on road construction. In 2002, the CTF proposed a Municipal Roadway Trust – a practical model for returning half of federal gas tax revenues directly to municipalities to spend on roads and highway development and maintenance. The 2007 report is available at: http://www.taxpayer.com/pdf/Gas_Tax_2007.pdf

Canadian Gas Facts:

Over the past 12 months – the period of May 2006 to April 2007 – the average cost of a litre of gasoline paid by Canadian motorists was approximately 99.2 cents. Gasoline taxes account for an average 33 per cent of the pump price. In the past two years, the average national price of gasoline has increased by over 14 cents.

In 2003, Canadian municipalities spent $6.4-billion building and maintaining roads. More than eighty per cent of all roads in Canada are municipal roads.

The federal government collects billions of dollars each year from gas and diesel excise taxes. In the 2006-07 fiscal year, Ottawa collected $5.2-billion in gasoline and diesel taxes (not counting GST revenues). In fiscal 2004, Ottawa reinvested only 7 per cent of its gas tax revenues in roads and highway development. In 2007-08, the federal government will dedicate $1.8-billion to roads and highways. This represents 36 per cent of annual gas tax revenues. By 2009-10, over $2.6-billion will be spent on road infrastructure, which exceeds the 50 per cent of gas tax revenue target first advocated by the Canadian Taxpayers Federation in 2002. This turnabout is a partial victory for taxpaying motorists. To complete it, gas taxes need to be lower.

GST is charged on the full pump price, gasoline taxes included. It is a tax-on-tax. In 2007-08, the federal government will collect $1.5-billion in gasoline GST revenues. Last year, Ottawa collected nearly $1.8-billion from GST on gasoline. (The tax bite was eased to some extent as a result of the one point GST reduction.)

The federal government benefits from higher gas prices. As the pump price increases so too does the GST. For every 10 cent increase in the price of gasoline, OttawaR17;s GST revenues rise by $150-million.

As a deficit reduction measure in 1995, Ottawa increased the federal gasoline tax from 8.5 to 10 cents per litre. The deficit was vanquished a decade ago, but the tax remains and the federal government’s gouging at the pumps continues even with multi-year, multi-billion dollar federal surpluses. All said, the federal gasoline tax increased by 567 per cent between 1985 and 1995 – rising from 1.5 to 10 cents per litre.

In opposition, the Conservatives made repeated promises to remove the GST tax-on-tax bite and pledged to remove the GST completely when gasoline prices exceeded 85 cents per litre. In the summer of 2005, Mr. Harper was quoted saying that gas taxes could be reduced by as much as 5 cents a litre.

The 2006 and 2007 Conservative budgets failed to lower gas taxes although roadway spending is substantially increased.

John Williamson
Federal Director
Canadian Taxpayers Federation

A New GST/HST Processing System

The Canada Revenue Agency (CRA) has issued a news release announcing that the CRA has enhanced its GST/HST processing and is placing a new system into operation.

"These improvements build on the shared commitment of National Revenue Minister Carol Skelton and the CRA to reduce the compliance and paperwork burden for Canada’s small businesses as outlined in the recent report from the Action Task Force on Small Business Issues www.cra.gc.ca/atfreport."

"The modernization of the processing of GST and HST will enable CRA to expand its services to businesses, and improve compliance."

"Starting now, GST/HST registrants can use the CRA’s My Business Account www.cra.gc.ca/mybusinessaccount and Online Requests for Business www.cra.gc.ca/requests-business to electronically ask the CRA to perform certain actions on their account."

For more information, see:
http://www.cra-arc.gc.ca/newsroom/releases/2007/may/nr070516-e.html

Federal Spending: Only One in 10 Dollars Going to Defence Budget

Federal spending has increased dramatically since the Conservative Party won election in January 2006. Some Tory partisans argue the rapid rise is the result of one-time expenditures in equipment for the armed forces after years of Liberal neglect. It is not, they insist, irresponsible spending by a party trying to purchase a majority government.

Are they correct? Is a rising defence budget really responsible for spending going through the roof?

To date, the government has announced approximately $11-billion in military capital commitments as part of Prime Minister Stephen Harper’s undertaking to “equip and strengthen” the Canadian Armed Forces. However, Ottawa has only budgeted to spend half this amount.

The government’s “Canada First Defence Strategy” includes procurement of new armoured patrol vehicles, support ships, helicopters and the acquisition of tanks. The Conservative’s first budget, tabled in May 2006, proposed a plan to spend $5.3-billion over five years to modernize the Armed Forces. But the government allocated just $400-million to be spent in the 2006 fiscal year.

The second budget, tabled in March 2007, accelerated the implementation of the $5.3-billion defence plan by pledging to spend $3.1-billion over three years. According to the 2007 Budget, $900-million more will be spent this year, $1-billion in fiscal 2008, and $1.2-billion in fiscal 2009. The remainder of the $11-billion capital commitments will be spent in future years, most likely beginning in 2010.

During the last year of Liberal government rule, the Department of National Defence (DND) spent $14.7-billion in the 2005 fiscal year. The amount represented 8.4 per cent of Ottawa's total program spending.

As a result of the Conservative’s heightened military emphasis, the military budget increased to $15.2-billion in fiscal 2006. And Ottawa's spending estimates indicate the DND budget will rise to $16.9-billion this year (fiscal 2007). The bottom line is defence spending has increased by $2.2-billion under the Conservative government in its first two years in office.

Without a doubt, the federal government is spending more to re-equip and prepare the military for overseas engagements. This will strengthen Canada's military punch. But these expenditures do not adequately explain Ottawa's overall spending growth, which is fast rising. Defence spending is up, but so are other federal expenditures. Consider the numbers:

In fiscal 2006 — the first year under the Conservative’s watch — spending ballooned by $13.8-billion, rising from $175.2-billion when the Grits were removed from office to $189.0-billion under the Tories. This is the second biggest jump since the books were first balanced ten years ago. (Sadly it means several Liberal budgets were more prudent than Finance Minister Jim Flaherty’s fiscal framework.) For the current fiscal year, which began on April 1, spending is set to jump another $10.6-billion and level off at just under $200-billion. The military accounts for only a fraction of overall government spending growth.

The total two year spending increase under Minister Flaherty is an eye-popping $24.4-billion. This is a 13.9 per cent increase in federal receipts. Of the $24.4-billion increase, only $2.2-billion can be attributed to OttawaR17;s military budget. In other words, for every $10 spent in fiscal 2006 and 2007 less than one dollar is going to fund new defence hardware purchases.

In fact, the military share of overall program spending actually dropped from 8.4 per cent to 8.0 per cent last year because non-defence spending increased at a faster rate. This year it will be 8.5 per cent, which is only slightly higher than the percentage under the Liberals.

The rapid rise in spending has little to do with reinvigorating the armed forces after “years of neglect.” In reality, expenditure increases in Ottawa are not limited to a handful of priority areas, like the military. Rather spending is up across-the-board because the Conservative government neglected to cut spending in its non-priority areas, like corporate welfare, and overly-hyped “fiscal imbalances” with the provinces.

It is incorrect for government MPs and Conservatives to argue the large increase in military spending is driving Ottawa's recent spending spree. It is simply not the case when you look at how much has actually been budgeted, rather than what has been committed in future years.

John Williamson
Federal Director
Canadian Taxpayers Federation