The fact that Canadians have to file their income taxes by April 30 goes back 100 years ago to the actions of Sir Thomas White. The federal finance
minister in Conservative Prime Minister Robert Borden’s government was initially a reluctant champion of an income tax bill. When he tabled the federal budget on April 24, 1917, he said “that
income tax should not be resorted to (in Canada).”
By that time, Australia, Great Britain and the United States had already introduced income tax schemes, but White was still sitting on the fence, despite mounting pressure from other politicians and some newspaper editors that it was necessary to introduce a “conscription of wealth;” that is, put in place an income tax to fund the war effort. Wars are costly, especially if a nation had been at war for three years as was the case for Canada. In 1916, the Great War (First World War) had cost $600 million, a substantial amount for a nation of just eight-million people.
White’s reluctance evaporated weeks later with the reality of funding a long war that was draining Canada’s treasury. The Winnipeg Free Press on July 26, 1917, claimed White’s reluctance was based on “the fact that the people of this country from the very outbreak of war had been most generous in contributing to the Patriotic, Red Cross and other funds connected with the war.”
Donations to such funds by Canadians amounted to nearly $50 million during three years of war. White didn’t want these funds to dry up by imposing a high level of income taxation.
A day later, the newspaper called White’s bill “long overdue.
“The inherent justice of the measure, apart altogether from revenue requirements, consists in its recognition of the principle that financial sacrifice of no mean degree is incumbent upon those who are not serving the fighting ranks.”
The implication was that the “conscription of wealth” was how non-combatants not on the front lines could become active participants in the war effort.
“Mr.Chairman, I desire today to lay before this committee (of the whole) proposals for a national measure of income taxation,” White said in the House of Commons on July 25, 1917. “Hitherto we have relied upon duties of customs and of excise, postal revenues and other miscellaneous sources of revenue.”
Among the miscellaneous sources of revenue was a Business Profits War Tax introduced in 1916 that was slated to
expire after one year (of course, it was extended due to increasing public
pressure paying the new income tax and the need for more funds).
He explained that Canada was a country noted for inviting immigration. “I have, therefore, thought it desirable that we should not be known to the outside world as a country of heavy individual taxation.
“We are, however, confronted with grave conditions arising out of the war. The time has arrived when we must resort to direct taxation. I am confident, Mr. Chairman, that the people of Canada, whose patriotism during this war has been so often and so nobly proven, will, in light of present conditions, which call for it, cheerfully accept the burden and the sacrifice of this additional taxation.
“We cannot see very far ahead in these days. We do not know how long this war will last. We do not know what the attitude of the people of this country will be upon the many questions, social, industrial, financial and fiscal.
“Therefore I placed no time limit upon this measure but merely have placed upon Hansard the suggestion that, year of two after the war is over, the measure should be reviewed by the minister of finance of the day, with a vision of judging whether it is suitable to the conditions which then prevail.”
In effect, White had left the door wide open for future governments to keep the tax in place, whether the nation was at war or not. Future governments became addicted to the revenue the income tax generated and so it continued.
White may not have wanted the tax to survive the war and still be in place more than a couple of years afterward — he even referred to it as the “War Tax Upon Income” bill — but it was not to be. Hundred years later, Canadians are still paying, although at a significantly higher rate than that imposed in 1917.
One person did predict the continuation of income tax in 1917. “I have no doubt, that once we have embarked upon it, the judgement of the country will be that it should be continued for many years to come,” opposition finance critic, Alexander Maclean, told the House.
The July 27, 1017, Free Press continued in an editorial to evoke the “patriotic duty” to pay an income tax, claiming it was far from onerous since the exemption level was high. Under White’s bill, the tax was four per cent on single men over $2,000 (later reduced to $1,500). For others, the personal exemption was $3,000 for married Canadians. Incomes above $6,000 were taxed on a graduated basis that rose up to a top rate of 25 per cent. In all instances, that was a relatively high income for the time period, and only two per cent of Canadians paid the income tax (75 per cent pay today).
The White bill was based upon the principle of “ability to pay.”
“The onus of insisting upon due sacrifice by the wealthy to offset in some sort the personal sacrifice demanded of the men of military age should fall upon a Government fully representative of the nation” (Free Press, August 6, 1917).
The Free Press editorial stated that opponents would be exposed for their “unpatriotic sentiments and motives of those who, being in enjoyment of income which places them beyond the reach of poverty even in these times of high prices, object to a levy which is
considerably below that obtaining in most belligerent countries.”
The editorial pointed out that the income tax was not excessive in relation to other countries, and that Canada was taking steps to avoid “too heavy an imposition upon income concurrently with the existing taxes upon the raw materials and tools of industry and the food and other necessities of the people.”
A business section editorial in the Winnipeg Free Press on December 10, 1917, claimed the “graduated income tax, such as now in effect in Canada, is a definite step in the direction of the conscription of wealth.” But even the newspaper believed that the tax wouldn’t be in place beyond the duration of the war.
White’s bill had only six pages, 24 clauses and contained just 3,999 words. Today’s Income Tax Act has a hefty 1,412 pages, thousands of clauses and a million-plus words. While the 1917 act imposed a four per cent tax, Manitobans are now paying 50.4 per cent of their annual income in combined provincial and federal income tax.
What was seen in 1917 as a patriotic, reasonably fair tax with a limited lifespan, 100 years later has become a money-making machine for governments and an annual burden on many Canadian taxpayers. In effect, the concept of
“ability to pay” has taken a dramatic turn for the worse.