Trudeau government hiking taxes on smokes, booze, pursues tax cheats

OTTAWA — Canadians who drink, smoke and rely on public transit will be paying more thanks to changes in the federal budget.

Finance Minister Bill Morneau also said Ottawa will scrutinize the private corporations that wealthy professionals like doctors and lawyers use to reduce their taxes.

And he put tax cheats on notice, budgeting more than half a billion dollars in new money over five years to fund investigations.

“We will close loopholes that result in unfair tax advantages for some at the expense of others,” Morneau said in his speech.

“We will eliminate inefficient tax measures, especially those that disproportionately benefit the wealthy. And we will work with the provinces and territories to crack down on those who hide their identity to avoid paying taxes.”

The increased sin taxes are effective Thursday and will put an additional $55 million from tobacco and $30 million from alcohol in government coffers in the 201718 fiscal year.

The excise duty rate on cigarettes is increasing to $21.56 per 200 cigarettes from $21.03. For alcohol, the excise duty rates are going up two per cent and starting next year will be adjusted every April 1, based on the consumer price index.

The Liberals are also eliminating the 15 per cent tax credit for commuters who buy a transit pass, a move that will save the government $150 million this year.

In justifying the decision that will take effect July 1, the government said the credit was ineffective in encouraging the use of public transit and reducing greenhouse gas emissions. Instead, the Liberals plan to increase spending on public transit.

The budget did not make any changes to income tax rates amid uncertainty about the future of U.S. tax rates under President Donald Trump. Morneau also left capital gains taxes unchanged despite speculation on Bay Street that the Liberals could raise them.

“While caution was today’s watchword, this is not the end of the story,” TD Bank economists wrote in their assessment of the budget.

“It would hardly be surprising to see the tax system revisited once there is more certainty around Canada’s relative competitiveness.”

The government did make several changes it said were aimed at ensuring wealthy Canadians pay their fair share.

It will release a paper in coming months with possible policy changes related to private corporations used by wealthy Canadians to minimize tax. The budget said these corporations, often used to transfer money to family members, can result in high-income earners gaining unfair tax advantages.

David Steinberg, a tax partner at accounting firm EY, noted wealthy individuals can use private corporations to take advantage of the differing tax rates for things like income, dividends and capital gains.

“There’s such a difference between them,” he said.

The federal spending plan also included $523.9 million over five years for the Canada Revenue Agency to help prevent tax evasion and improve tax compliance. The increased spending is projected to yield $2.5 billion over five years in additional revenue.