Small Business Taxation and Income Inequality: The View from Canada

Michael Smart

National Tax Journal, 2021, vol. 74, issue 2, 493 - 512

Abstract: The Canadian tax system features exceptionally low rates of corporate taxation for small businesses, together with a system of corporate-personal tax integration. While in principle the system delivers low tax rates on active business income while ensuring equity and neutrality, there are substantial opportunities for tax avoidance by high-income professionals. This paper discusses the role of recent tax and regulatory changes in encouraging incorporation by high-income professionals, as well as the implications for the measurement of income inequality using tax data.

Date: 2021
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