How Trump’s tax-cut plan stacks up against Canadian system

CTax Expert alled the “biggest individual and business tax cut in American history,” this week’s long-anticipated U.S. tax reform announcement had four stated goals: growing the U.S. economy and creating “millions of jobs,” simplifying the “burdensome” U.S. tax code, providing tax relief to middleincome American families and, perhaps most significantly, lowering the U.S. business tax rate from one of the highest in the world to one of the lowest.

Let’s take a look at how the new, proposed U.S. tax changes compare to our Canadian tax system for individuals. each Canadian can claim a nonrefundable federal credit equal to 15 per cent of the basic personal amount, which for 2017, is $11,635. That means a couple filing Canadian taxes could earn $23,270 (albeit in Canadian dollars) without paying federal taxes, assuming the income was equally distributed between the couple, since Canada doesn’t allow joint filing of tax returns.

The Trump plan also calls for a simplification of the U.S. tax system which would see the elimination of various itemized tax deductions, including potentially deductions for home office expenses, employment expenses, state and local taxes, qualified medical expenses and even gambling losses. The plan did say, however, that the two most popular deductions, mortgage interest and charitable donations, would be protected.

Canada’s system is somewhat different in that we have both deductions that reduce taxable income, as well as tax credits which reduce our taxes payable. For example, we can deduct our RRSP contributions from our taxable income, but medical expenses are eligible for a 15 per cent non-refundable credit. We generally can’t write off our mortgage interest in Canada, unless the mortgage is on a rental property.

Over the past two years, the Canadian federal government has also taken steps toward tax simplification by cancelling a number of the so-called “boutique tax credits,” such as the children’s fitness and arts credits, the education and textbook amounts and, most recently, the public transit credit. A federal study is currently underway of other tax expenditures which may lead to further tax simplification in Canada as well.