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Sunday, May 06, 2007

The taxing price of compliance

With today's deadline for completing and filing personal income taxes looming large, many of us are curved over our computers scrambling to complete our tax returns, a task that drives home the huge cost of personal taxes. But the cost of these taxes extends well beyond our income tax bill. As taxpayers, we pay enormous costs year after year to comply with the tax code and pay for the government's tax collection system. It's time overburdened Canadian taxpayers started thinking about and challenging not only tax relief, but simplification of the obtainable tax system. Each year, we have to deal with a host of different costs in order to comply with Canada's tax regulations and pay our taxes on time. We spend time organizing tax receipts such as income statements, retirement contributions and charitable deductions. We spend even more time in fact preparing our tax returns.

Professor Francois Vaillancourt of the University of Montreal, a leading expert in this area, estimated that the average Canadian will spend more than five hours preparing and completing their tax returns. There are also costs associated with professional assistance such as tax accountants, lawyers and firms. According to data from the CRA some 42 per cent of all tax filings are prepared by a professional. A conservative estimate of the costs associated with professional preparation of personal tax returns in 2005 ranged from $400 million to almost $1.3 billion. In addition, roughly 4.5 million Canadians buy and use computer software to assist in preparing and completing their tax returns. The probable costs for tax software in 2005 were between $68.2 and $163.6 million. A conservative estimate of the total costs incurred by individual Canadians to prepare and complete their personal income tax returns in 2005 puts the number at somewhere between $2.9 billion and $5.4 billion.

Certainly, this doesn't take into account the psychological costs of time spent doing our taxes, nor does the estimate include the cost of complying with the countless of other taxes, particularly business taxes.

Businesses like individuals, incur costs to prepare and complete their tax returns. However, businesses are also required to act as tax collectors for the government for payroll and personal income taxes. Not surprisingly, the tab for complying with the tax code for businesses is significantly higher than for personal income taxes. Total compliance costs for Canadian businesses were estimated at between $13 and $19.3 billion in 2005. And if all of this isn't enough, don't forget the costs of administering and managing the tax system itself. These costs include the expenses incurred by the Canada Revenue Agency, which is responsible for tax collection in Canada as well as other government agencies engaged in tax collection. According to government sources, administrative costs amounted to $5.8 billion in 2005. When you add it all up, tax compliance and administration cost us somewhere between $18.9 and $30.8 billion, or $585 to $955 for everyone in Canada in 2005. That represented between 3.5 and 5.8 per cent of total federal, provincial and local revenues and between 1.4 and 2.3 percent of GDP in 2005.

Unfortunately, the tax system seems to be getting more complicated and more costly to comply with and administer. For example, consider the child fitness tax credit introduced last year. It provides tax relief to families whose children are engaged in physical fitness programs. Parents are required to collect and organize yet another receipt for tax purposes. Officials from athletic associations, many of whom are volunteers, now have to be able to issue official tax receipts and these same organizations have to ensure that they are eligible under tax guidelines to issue such receipts. When you add up all the time and costs, it's significant and only adds to an already complicated tax system.

As we come to the end of another tax season, with tax returns safely on their way to the government, take a moment to consider how we could all benefit from simplifying the tax code and its regulations. Such simplification would not only be a boon to taxpayers in general, but also ease the burden of complying with and administering our tax system.

Jason Clemens, Special to The Leader-Post
Published: Monday, April 30, 2007


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