Canadian Payroll Reporter

3 Canadian HR Reporter, a Thomson Reuters business 2017 Income tax at 100: Balancing of power Role of provinces in levying personal income taxes has changed through the century BY SHEILA BRAWN TODAY'S PAYROLL profession- als know that income tax deduc- tions include both federal and provincial/territorial calcula- tions. It has not always been this way. There was a time when only the federal government levied income tax. As federal income tax marks 100 years in Canada this year, it is a good time to look back on mile- stones in the history of income tax in Canada. One such turning point came during the Second World War when the federal government got the provinces to temporarily stop levying income tax. For most provinces, the ar- rangement lasted for close to 20 years and helped to lay the foun- dation for today's approach to income tax calculations. When the federal govern- ment implemented income tax in 1917 to help pay for Canada's role in the First World War, it was not the first government in the country to levy income tax. A few provinces and some mu- nicipalities were already doing it. "British Columbia, in 1876, was the first province to impose an income tax, although some municipalities began levying income taxes as early as 1831," wrote authors Munir A. Sheikh and Michel Carreau in a paper called A Federal Perspective on the Role and Operation of the Tax Collection Agreements, pre- sented at a tax policy conference in 1999. The federal government included the paper in its propos- al to change federal-provincial tax arrangements at the begin- ning of this century. While some politicians ini- tially complained about the fed- eral government entering into a provincial-municipal area of taxation, significant problems did not arise until the 1930s. "It was not until the Depres- sion, when federal, provincial, and municipal governments were all attempting to raise in- come tax revenues to meet in- creasing demands, that joint occupancy became an issue," Sheikh and Carreau wrote. "At that time, for the most part, there was little or no co-or- dination between governments on the design or administration of their respective tax systems. The lack of a common tax struc- ture and the non-uniformity of tax bases and rates produced large variations in tax burdens between provinces. In addition, tax administration was extreme- ly complex, with a multiplicity of forms, rates, and methods of calculation," they wrote. While all provinces faced dif- ficulties, poorer jurisdictions carried a significant burden. To find a way to better deal with the financial pressures, former prime minister Mackenzie King ap- pointed a commission in 1937 to put forward options that would better balance federal-provincial fiscal powers and obligations. The Rowell-Sirois Commis- sion, which tabled its report in 1940, made broad-ranging recommendations, including having the federal government become the only level of govern- ment in Canada to levy certain taxes, such as income tax. In return, the federal gov- ernment would take over re- sponsibility for provincial debt, unemployment insurance and News CPR | June 2017 see PUSHBACK page 8

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