Hitting Snooze on the Tax Bill – why tax deferrals aren’t always the answer

For immediate release

OTTAWA – Tax deferrals are often the policy tool of choice when businesses and governments aim to drive the economy, but not every deferral is fit for purpose.

In a new discussion paper Hitting Snooze on the Tax Bill, the Canadian Tax Observatory has set up a system to analyze when taxpayers are allowed to push off payment until later, under what conditions, and what happens to the economy as a result.

“Deferrals can be powerful incentives for the kind of economic activity we’re looking for these days. Or not,” says Heather Scoffield, CEO of the Observatory. “As our economy pivots and attempts to adapt to new global realities, it’s important that we know what measures are helping us and what measures mainly encourage dead money.”

The taxonomy of deferrals classifies the billions of dollars’ worth of deferrals into categories according to economic function, duration and potential effects.

In particular, the study looks at how deferrals affect active investment and productivity-boosting growth in the economy and where they drive a more passive accumulation of capital.

“A central question is how the capital made available by deferral is ultimately used, including whether it supports active business operations or accumulates in passive investments,” writes Jean-François Ruel, the Observatory’s senior economist.

Some deferrals, such as the recently announced mega productivity deduction, are positioned to drive growth that invites new economic activity, builds productivity as well as jobs. Others, such as deferrals for rollovers and the complicated stack of measures around retained earnings, enable more passive savings.

The taxonomy is the first step in assessing how deferrals generate investment and who benefits most. Further research will look more closely at capital gains, retained corporate earnings and selected rollover and estate arrangements to explore how they influence economic behaviour and interact with each other.

“To fully understand how deferrals work, we need to identify who benefits, how the money is used, how much control exists over timing and use, and how much tax is eventually paid, if any,” Ruel writes.

Read the report, executive summary and key findings.

For more information, please contact:

Heather Scoffield, CEO
The Canadian Tax Observatory
heather@canadiantaxobservatory.ca
Cell: 613-314-1198

About the Canadian Tax Observatory

Established in 2025, the Canadian Tax Observatory is an independent charity devoted to helping people and policymakers understand the tax system. Through research, public education and collaboration, its goal is to advance a tax system that promotes economic growth, shared prosperity and fairness.

About Jean-François Ruel

Jean-François Ruel is senior economist at the Canadian Tax Observatory, specializing in tax policy, microsimulation and quantitative analysis. He brings more than 25 years of experience in the federal public service, most of it at the Department of Finance Canada and the Canada Revenue Agency. At Finance, he developed corporate income tax models and contributed to federal budget measures. At the CRA, he served as Deputy Chief Data Officer, led the publication of Canada’s tax statistics and advanced the use of analytics in tax administration.

About Heather Scoffield

Heather Scoffield is the first CEO of the Canadian Tax Observatory. She has devoted her career to writing and public engagement around economic policy. Over the course of her 30-year career in journalism, she covered monetary and fiscal policy, economics, trade, environment and energy. Previously, she was the Ottawa bureau chief and economics columnist for the Toronto Star, where her writing focused on political economy and its effect on people, and Ottawa bureau chief for The Canadian Press