Canadian Payroll Reporter - sample

News Published 12 times a year by Thomson Reuters Canada Ltd. Subscription rate: $179 per year Customer Service Tel: (416) 609-3800 (Toronto) (800) 387-5164 (outside Toronto) Fax: (416) 298-5106 E-mail: customersupport.legaltaxcanada @tr.com Website: www.carswell.com One Corporate Plaza 2075 Kennedy Road Toronto, Ontario, Canada M1T 3V4 Director, Media Solutions, Canada Karen Lorimer Publisher/Editor-in-Chief Todd Humber Editor Sheila Brawn sbrawn@rogers.com Editor/Supervisor Sarah Dobson News Editor Marcel Vander Wier Sales Manager Paul Burton paul.burton@thomsonreuters.com (416) 649-9928 Marketing Manager Robert Symes rob.symes@thomsonreuters.com (416) 649-9551 Circulation Co-ordinator Keith Fulford keith.fulford@thomsonreuters.com (416) 649-9585 Payroll Reporter Can R Can R adian adian a www.payroll-reporter.com ©2017 Thomson Reuters Canada Ltd ISBN/ISSN: 978-0-7798-2810-4 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, photocopying, recording or otherwise without the written permission of the publisher (Thomson Reuters, Media Solutions, Canada). Return Mail Registration # 1522825 | Return Postage Guaranteed Paid News Revenue Toronto Canadian Payroll Reporter is part of the Canadian HR Reporter group of publications: • Canadian HR Reporter — www.hrreporter.com • Canadian Occupational Safety magazine — www.cos-mag.com • Canadian Payroll Reporter — www.payroll-reporter.com • Canadian Employment Law Today — www.employmentlawtoday.com • Canadian Labour Reporter — www.labour-reporter.com See carswell.com for information Pushback spurred creation of current system contributory pensions, as well as make transfer payments to the provinces to help ensure equal access to health and education services across the country. However, the federal and pro- vincial governments could not agree on the recommendations, with provinces such as Ontario refusing to give up the right to levy income tax, corporation tax or succession duties. While the federal govern- ment had to shelve the report, it continued to try to convince the provinces to let go of some of their tax power. In the 1941 fed- eral budget, then-finance min- ister James Lorimer Ilsley an- nounced that the government needed to sharply raise both personal income and corpora- tion taxes, as well as a national defence tax, to pay for costs re- lated to Canada's participation in the Second World War. Ilsley suggested that the provinces temporarily give up their right to levy income and corporation taxes. In return, the feds would provide compen- sation payments to the provinces and pay their debt costs. He proposed that the prov- inces allow the federal govern- ment to have sole authority in income and corporation taxes for the rest of the war and one year afterwards. With munici- palities being creations of the provinces, municipal income taxes would also end. Despite initial resistance to the proposal, the provinces did eventually agree to leave per- sonal and corporate income tax to the federal government from 1941 until after the war in return for compensation. This was the beginning of a period known as the "tax rental agreements." Despite the fact that the ar- rangement was to be temporary, when the war ended, the federal government proposed that the provinces permanently give up the right to levy certain taxes, including personal income tax, in exchange for increased com- pensation payments. While the provinces did not accept a permanent withdraw- al, all but Ontario and Quebec agreed in 1947 to extend the tax rental agreements for five years. Newfoundland passed similar legislation when it joined Con- federation in 1949. In 1952, the provinces — in- cluding Ontario this time — signed another rental agreement for a further five years. Quebec continued to opt out and even- tually set up its own personal in- come tax system in 1954. The tax rental agreements re- mained in place until the early 1960s when both levels of gov- ernment agreed that the prov- inces should have the authority to levy their own income tax. Under a new agreement that came into effect in 1962, prov- inces began levying personal income tax again, but not in the way they had before the war. Instead of each province set- ting up an independent tax sys- tem with different rates, income brackets and collection proce- dures, they agreed to some uni- formity. Each province would set a single provincial personal income tax rate calculated as a percentage of basic federal in- come tax. In addition, the feder- al government agreed to collect provincial income taxes on their behalf. Quebec did not take part in the new arrangement, opting to continue with its own income tax system. This method of taxation, called "tax-on-tax," remained in place, with modifications, un- til 2000-2001 when provinces/ territories (other than Quebec) began moving to the current system called "tax on income." It allows provinces/territories to directly tax taxable income rather than levy the tax through a percentage of basic federal tax. Simply put, tax on income re- quires provinces to use the fed- eral definition of taxable income, but allows them to set their own income tax rates, taxable income brackets and tax credits. The federal government still collects income taxes for the provinces/ territories and their residents continue to file one tax return. The push for the tax-on-in- come system began in the 1990s, as provinces grew frustrated with what they saw as unfair- ness in federal-provincial fiscal arrangements and demanded more control over tax decisions. "Unless the federal govern- ment is prepared to address these inequities, Ontario will have to seriously consider with- drawing from the current ar- rangement," former Ontario fi- nance minister Ernie Eves said in his 1997 budget speech. In 1999, former Alberta fi- nance minister Stockwell Day announced that in 2001 Alber- tans would "officially unhook ourselves from our decades-old attachment to federal tax rates." Other provinces made similar announcements in their budget speeches, and the move to tax on income began. While the tax-on-income ap- proach is now just another part of the source deduction process, in the lead-up to its implementa- tion, it was a significant change for payroll professionals, who had to update their payroll sys- tems and learn a new way to cal- culate income tax deductions. The provinces' role in Can- ada's income tax system has changed significantly in the last century. It is unlikely that poli- ticians from 100 years ago ever thought that their successors would give up the right to levy income tax, albeit temporarily. It is also unlikely that the suc- cessors ever imagined that the provinces would have as much control over their income tax systems as they do today. from INCOME TAX on page 3 The push for the tax-on-income system began in the 1990s, as provinces grew frustrated. June 2017 | CPR

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