While tax rules today thwart democracy, tomorrow they could build it

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Headquarters of the Canada Revenue Agency. Photo: Jcart1534/Wikimedia Commons

Last week an Ontario judge ruled the Canadian tax system has been depriving citizens of freedom of speech, curtailing political rights, and restricting democracy.

A registered charity, Canada Without Poverty, was prosecuted by the Canada Revenue Agency (CRA) for doing non-partisan political work 98.5 per cent of the time, when the 1985 Income Tax Act limited such political activity by charities to 10 per cent (prior to 1985 any political activity was prohibited).

The judge ruled that the 10 per cent limit on political expression contravened rights protected by the Canadian Charter of Rights and Freedoms. The effect of the 10 per cent rule was to prohibit political activity such as anti-poverty activism -- not just to restrain it to 10 per cent of activity. 

Along with a host of other organizations, the anti-poverty NGO had been threatened by the CRA with losing its ability to finance itself through issuing charitable receipts to its donors.

The CRA campaign against NGOs was started by the Harper Conservatives. The Trudeau Liberals had complained about it, studied the situation, but done nothing to change it.

The power of the tax system reaches deep into the conduct of politics. Not only do taxes fund government spending, tax rules empower some groups while disempowering others.

Corporations sponsor trade associations such as the Canadian Manufacturers and Exporters, fund powerful lobby groups like the Business Council of Canada or the Canadian Federation of Independent Business, and friendly think-tanks like the Fraser Institute.

Tax rules allow Canadian businesses to deduct these political expenses against revenues before identifying profits, which alone are subject to corporate and small business income taxes.

Prior to calculating taxable income, citizens receive a personal income tax deduction. This is just one avenue available to reduce taxable income. Others include deductions for pension contributions, RRSPs, RESPs, and other tax incentives to promote future individual and family benefits.

Citizens who contribute to federal political parties receive a 75 per cent tax credit for amounts up to $400. This means you can reduce the amount of tax you pay by $300; in other words, you can pay $100 in taxes, and send $400 to a political party, instead of paying $400 in taxes.

Charitable contributions allow you to reduce taxable income, which provides a lesser benefit than reducing your tax payable.

To support the kind of citizen-based, democratic-friendly activity of the sort undertaken by Canadian NGOs, it would make sense to introduce a universal 100 per cent tax credit of say, $500, that could be directed to the non-profit organization of your choice. Such a contribution could be made "refundable," meaning that even citizens without taxable income would be able to choose an organization to receive the $500. 

This "popular sector" provides meaningful paid employment, meets basic human needs, and generates more jobs per dollar spent than the business sector. These not-for-profit organizations are a hive of democratic activity.

The Toronto Star has called for giving newspapers and other subscription-based print outlets the right to issue tax receipts as a way of supporting journalism, a profession vital to democracy, and under siege from multiple directions, not the least of which is the newspaper business itself.

Traditionally the business expense deduction provided the ad revenues that were the main source of income for newspapers, radio and TV stations, and magazines. Faced with the overwhelming competitive advantage of American publications in the Canadian market, in the 1970s Ottawa decided to limit allowable deductions for advertising to demonstrably Canadian media outlets. For periodicals it meant producing at least 80 per cent original content.

Under Section 19 of the Canadian Income Tax Act, Canadian companies that wanted to deduct advertising expenses had to advertise in Canadian publications. This measure helped the magazine sector in particular to survive against the "dumping" or selling below cost of American products in Canada.

Without evaluating the impact, in 1996 Ottawa exempted online advertising expenses from Section 19.

The pitiful state of the Canadian newspaper and magazine world today is in part due to the subsequent massive movement of advertising dollars online to Google, Facebook, Twitter, and Amazon.

It is not too late to remove the Section 19 exemption for online advertising expenditures in foreign-owned outlets as a business expense for Canadian companies. The Canadian government might not resurrect the domestic magazine and newspaper industry, but it could certainly help Canadian media of all kinds collect advertising dollars.

And why not allow legitimate Canadian media outlets to claim salaries for journalists and writers as a credit against tax payable, not just as a business expense?

The democratic potential of the tax system needs to be explored and acted upon.

Duncan Cameron is president emeritus of rabble.ca and writes a weekly column on politics and current affairs.

Photo: Jcart1534/Wikimedia Commons

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