How to pay taxes like a corporation

If you're anything like me, your brow will be furrowed this week in concentration (or is it fear?) as you scramble to meet Monday's tax deadline. The prospect of digging a little deeper for the Canada Revenue Agency has probably got your dander up quite sufficiently already. But just in case it hasn't, take a moment to consider how green the fiscal grass has become on the corporate side of the fence.

A stunning, but mostly unnoticed, reallocation of the Canadian tax burden has occurred this decade, off the backs of corporations and onto the backs of individuals. Beginning in 2000, the federal government, and most of the provinces, began a series of steady, deep cuts in corporate tax rates. These were reinforced by other measures (like eliminating capital taxes and expanding income trusts) that reduced the burden on business even further.

Individuals, too, received tax cuts. But they've been stingy in comparison to the corporate givebacks. For obvious political reasons, finance ministers tend to trumpet personal tax cuts while playing down the bigger savings enjoyed by corporations. But, at the bottom line, it's clear who got the bigger slice of the pie.

Reductions in average effective personal income taxes since 2000 have boosted personal income by less than one per cent. In contrast, the tax savings for corporations were 10 times as large. Their effective tax rate fell by 10 points, worth more than $18-billion last year alone. That represents almost 40 per cent of all the tax cuts implemented since 2000.

Indeed, corporate tax collections have hardly grown at all, even as business profits ballooned to all-time records (both in dollars and as a share of GDP). Of the $64-billion in new profits pocketed by business since 2000, just $4-billion went to new taxes. Corporate tax rates fell almost as rapidly as profits rose, so windfall profits had virtually no effect on the tax bill. Whenever a lucky individual enjoys a jump in income, it seems as if taxes eat up nearly half the gain. Not so for business: Their new money has been virtually tax-free.

How do corporations do it? For Canadians who dream of paying tax like a corporation, here's a step-by-step guide to accessing the gravy train:

• Step 1: Change your last name to Limited, Incorporated, or (best of all) Trust.
• Step 2: Instead of declaring wages like a normal working stiff, declare capital gains. Then you only owe tax on half of your income. Better yet, declare flow-through dividends, and pay virtually no tax at all.
• Step 3: Shrink yourself, and pay less tax. For some reason, smaller incorporated businesses face a lower rate than bigger ones. That's worth $4-billion per year.
• Step 4: Find a valuable non-renewable resource that belongs to someone else, dig it up, and sell it. Then pay the owners a big fat one per cent royalty. That's how it works in the oil sands -- no wonder oil profits are so high.
• Step 5: Individuals have good years and bad years. But they have to pay tax when the good times are rolling, as if they'll never stop. Businesses, however, get to carry forward losses to reduce taxes in the good years. That saves $5-billion per year.
• Step 6: Make friends in high places who cut your tax rates year after year -- whether you need it or not.
• Step 7: When you've finished your return, open a bottle of really expensive wine to celebrate your successful tax avoidance. Then go back and write off half its cost as a legitimate business expense.

I wouldn't be nearly so grumpy about the unprecedented decline in corporate taxes, if companies were doing something useful with that $18-billion. But they're not: Business investment in Canada has been utterly lacklustre since 2000, and business tax cuts have been scandalously ineffective in motivating actual economic activity.

So once I've filed my own return, I'll have to satisfy myself with a bottle of cheap plonk. Worse yet, I'll have to pay for the whole thing myself.

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