Elbows Up: The Time for Personal-Corporate Tax Reform is Now

Evelyn Jacks

One can’t avoid the messaging of the economic pain to come. Our deteriorating economic relationship with our biggest trading partner will require us to “pivot and prosper” in order to emerge “stronger and more resilient” says our Prime Minister. While exactly how we will do this is still unclear, there is one clear opportunity: for both federal and provincial governments to initiate a significant personal and corporate tax reform in the upcoming fall budget.

Why Do Tax Changes Matter More Now? Canada’s Prime Minister has called the the times we are in a “global rupture”. What this really means is that global trade rules are unpredictable and in some cases, broken. The resulting economic demands of weaponized trade behaviors, at the extreme, can threaten our independence as a nation. 

So why tax reform now? There are two key reasons:

(a) Labor Force Boosts. Lower personal taxes can increase labor force productivity and spending needed by Canadian businesses to survive the trade war. It can also help individuals to reduce debt and increase savings, so necessary to buffer finances for difficult financial roads ahead.

(b) Business Boosts. On the corporate side, comprehensive tax reform focused on reduced tax rates and a reduction in complexity and red tape, can help attract business investment from within and from afar. This is is critical for the economic resilience we need to beat the odds in the US trade war.   

Here’s a deeper dive:

Keeping Talent in Canada. High personal taxes make Canada a less attractive place to work, especially for the top income earners in the professions. There has been much written on these behaviorial outcomes. 

Consider a 2026 study from the Fraser Institute, which measured progressivity in the Canadian tax system. It noted ways in which increasing taxes hinders economic growth and prosperity.  For example, high tax rates reduce the rewards that come from earning a next dollar of income.    

Low tax rates can to do the opposite: workers might want to work those extra overtime hours, knowing they will keep more. They may strive higher and vye for their next promotion and the higher take home pay that comes with that. Doctors and others providing essential services, may choose to work more days rather than fewer. 

Provices like Manitoba should quickly rethink the de-indexing of personal tax rates – a hidden tax – for these reasons. 

It’s About Cash Flow. In the alternative, when tax rates drop, taxpayers’ take home pay rises. That can spur on the consumer spending so badly needed by the small business community affected by the trade war. In fact, more lower income earners may re-enter the workforce, too. However, the punitive clawback of refundable benefits may be a barrier. This despite a Canada Worker’s Benefit designed to supplement the costs of going back to work. The problem? It’s mindnumbing in its complexity. 

Simplicity is Paramount. It has been widely noted that our tax system is incomprehensible and increasinly unmanagable – even for CRA employees. Canada’s Auditor General issued a scathing report noting that on test calls,only 17% of the answers provided to taxpayers on general income tax questions were accurate. Business calls received correct answers about 55% of the time.

This has many ripple-down effects for the economy. For example, we do have a Canada Worker’s Benefit to encourage low income earners to enter the workforce, but its mindnumbing complexity makes the provision incomprehensible.

This is true of many, many tax preferences across the income tax system. They have become punitive simply because people are wasting so much time gettng their tax filings right.     

The CEBA Experience: Small Businesses Need More than Loans. While the federal government has said it will offer assistance to small businesses affected by the trade wars, an offer of further indebtedness may not be helpful.  

Recall the CEBA (Canada Emergency Business Account) experience. The federal government approved close to 898,000 loans in the amoutn of just over $49 billion at the height of the pandemic. The final date to repay the outstanding balance is coming up soon on December 31, 2026. 

Stats Canada, however, has found in a report last updated in August that of the 71.8% of businesses that have not paid back all of their CEBA loans, only 65.4% will have the ability to do so by the deadline date.   

What More Could be Done? Renowned Canadian economist and academic, Dr. Jack Mintz and his colleagues at the C. D. Howe institute note that “Canada has the weakest growth in per capita national income among G7 countries. . . and a greater reliance on personal income taxes than any other G7 country.”

In his recent report, Dr. Mintz advocates for a simplified personal tax system: the first $26,000 of taxable income would be tax free; and there would be very limited number of other deductions specifically for retirement, charitable donations, disability or caregiving, or for expenses incurred to earn income. 

Corporate tax rates should also be reduced for all businesses, large and small to 10% with the small business deduction and various capital cost allowance provisions being eliminated. 

Other ways to boost economic activity on Main Street Canada could include providing immediate payroll tax reductions for small businesses which invest in training their people for new economy changes[1]. Alternatively, sales tax reductions could apply to businesses which switch to Canadians suppliers and increase inter-provincial trade.

• Under this single-offering, new and existing Work-Sharing flexibilities will be supported and employers will be eligible for additional funds to cover training and administrative costs (up to $1,000 per participant)

Bottom Line. It’s high time to get serious about the painful pivot we are well emersed in. Perhaps one of the best ways for the federal and provincial governments to help, is to put more money in the pockets of Canadian consumers and small business owners as soon as possible. This “elbows up” strategy could well spur on labor force productivity, diversified business investments and new entrepreneurship. Let’s see if they will rise to the occasion.  

What’s your take? Please answer this month’s poll question now: “In your view is a comprehensive personal and corporate tax reform necessary to make Canada's economy stronger in response to trade wars?”

[1] The government did announce a new Workforce Retention and Retraining Program will be established, which will combine the existing EI Work-Sharing program and Worker Retention Grant into a single, streamlined program designed to be more accessible and generous. The program will help businesses retain and retrain workers who have agreed to work temporarily reduced hours and will provide employers with funding of up to $1,000 per participating employee to support training costs. The application period is February 16, 2026, to December 31, 2027, at 3 pm EST.