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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
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June 2017
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