Income inequality: Tax tweak could greatly benefit low income Canadians - School of Public Policy report.

CALGARY, Aug. 24, 2015 /CNW/ - With the debate about income inequality on the rise in Canada, governments are considering innovative solutions. One possibility for improving the tax-transfer system involves refundable tax credits (RTCs). Making all tax credits refundable wouldn't require Ottawa to introduce new tax measures; the Canadian tax system already contains a mix of refundable and non-refundable tax credits, so the government could simply continue its practice of designing tax credit programs to be refundable.

A report released today by The School of Public Policy and authors Wayne Simpson and Harvey Stevens analyzes the impact and cost of converting existing non-refundable tax credits to refundable tax credits targeted at low-income households and offers several effective and viable solutions on an issue that is critical to Canadians.

As it stands, non-refundable tax credits (NRTCs) are of no value to persons in a non-taxpaying position, and as such, taxpayers and non-taxpayers are treated differently. Programs such as the Canada Child Tax Benefit and Goods and Services Tax Credit determine benefit levels according to family taxable income - unfortunately most tax credits remain non-refundable and benefit only those who owe taxes.  According to the authors, "making all tax credits refundable is feasible, and would turn the tax system into a proper negative income tax system - where people earning below a certain amount receive supplemental pay from the government instead of paying taxes to the government."

Converting existing NRTCs to RTCs is a modest but effective step to deliver benefits to low-income households in the fashion of a guaranteed annual income, but the most important part of these and the other conversion plans detailed in the report, is that most of the benefits are directed to low-income households. By far the largest benefits are directed to the poorest families with incomes less than 50 percent of the low-income cutoff. The conversion of existing NRTCs to RTCs is a modest but potentially important step toward fairness in the treatment of tax filers and in addressing Canadian income inequality.

The paper can be downloaded at http://www.policyschool.ucalgary.ca/?q=research

SOURCE The School of Public Policy - University of Calgary

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