Canadians fail new tax survey

When it comes to taxes, Canadians know that they generally have to fork over at least a few bucks to the government every April. But as for the fine details, most Canucks are in the dark.

A new true-or-false survey by Mackenzie Financial asked Canadians 10 tax-related questions. On average, the respondents answered only three questions correctly, which translates to an F-grade. “This is exactly what I knew would happen,” says Sandy Cardy, senior vice-president of tax and estate planning for Mackenzie Financial.

Cardy says the reason for the low numbers is that the legal and tax landscape has become more complex since the last survey two years ago, which saw, on average, six out of the 10 questions answered correctly. “Almost every issue has a tax element to it,” she explains.

Another reason for the failing grade is that five of the questions dealt with new legislation that was passed this year. In one true/false question, Mackenzie asked, “You are only allowed to contribute to a Registered Retirement Saving Plan (RRSP) up to the age of 69.” That answer is false — new rules introduced this year changed the contribution cut-off age to 71. Only 20% of respondents answered that correctly.

Other questions dealt with RESP contribution limits, income splitting and donated stock.

Robert Abboud, CFP and president of Ottawa-based Wealth Strategies, isn’t surprised Canadians did so poorly on the test — he thinks the questions were “very difficult for the average Canadian to answer.”

The point of the survey, says Cardy, wasn’t to illustrate the country’s tax illiteracy; it was to show Canadians the importance of hiring a financial planner. “People should spend more time before the end of the year with a financial planner and make sure that all the strategies available to that individual are taken advantage of,” she says.

She also adds that the survey was just “general stuff that most Canadians can take advantage of” and that the “level of difficult comes from the breadth of what we need to know. As for level of depth and complexity we made sure it was clear and simple and jargon free.”

The test results are also meant to show that Canadians need to think about their tax situation before the end of the year, and not just in April. Cardy says certain tax advantages, such as income splitting, need to be addressed before the year’s end. “It’s too late to wait until April to do tax planning for 2007,” she explains. “Canadians need to be proactive with regard to tax planning, and most often they do nothing to minimize taxes until April. By that time, most tax savings are lost until the following year.”

While no planner would argue against more Canadians taking a greater interest in their taxes, Abboud says it’s not necessary. That’s what the financial advisor is for. “Canadians don’t really care to keep up because either they will have tax software or they’ll have an advisor who is pretty much up to date,” he says. “And they shouldn’t have to care about these things. That’s our job.”

He adds that it’s “healthy” for Canadians to worry about things other than taxes and that it’s really up to the advisor to contact 69-year-old clients and tell them that they still have two years left to contribute to their RRSPs.

Abboud says he’d be interested in seeing how well advisors would fare. “I was surprised at how tough the test was,” he says. “I bet if advisors did this, they would get at least three out of the 10 wrong. They based it on very new tax reform, which isn’t really that fair.

“They should, without question, take a look at this test — some of the answers might surprise them if they don’t have recent updates on tax changes. They should be up to date on this because, as the results show, clients leave their taxes up to us.”

Take the Quiz: 1. “You are only allowed to contribute to a Registered Retirement Saving Plan (RRSP) up to the age of 69.”

2. “The limit to what I can contribute to my child’s Registered Education Savings Plan (RESP) each year is $4,000.”

3. “A 65-year-old may allocate up to 50% of their Registered Retirement Income Fund (RRIF) income to their spouse or common law partner.”

4. “If a parent transfers an asset into joint ownership with an adult child, future income taxes are split 50/50.”

5. “You can pay for an adult child to take care of younger children in your household and deduct the cost of child care expenses.”

6. “Net capital losses realized in a given year may be carried back to any of the three preceding tax years.”

7. “You can reap the benefits of a donation to a charity on your 2007 tax return provided the donation is made by March 1, 2008.”

8. “If I redeem or sell units of my non-registered mutual fund in 2007, I will have to include 50% of any realized gain in my 2007 tax return.”

9. “If I donate publicly listed stock, for example BCE stock, to charity, I can avoid paying tax on the capital gain no matter how long I’ve held it.”

10. “I can claim a tax credit for 2007 of up to $500 for each child under 16, who registered this year in a qualified physical activity.”

Answers

The results for survey respondents are in italics. 1. “You are only allowed to contribute to a Registered Retirement Saving Plan (RRSP) up to the age of 69.” False. (20% Correct).

2. “The limit to what I can contribute to my child’s Registered Education Savings Plan (RESP) each year is $4,000.” False. (17% Correct).

3. “A 65-year-old may allocate up to 50% of their Registered Retirement Income Fund (RRIF) income to their spouse or common law partner.” True. (42% Correct).

4. “If a parent transfers an asset into joint ownership with an adult child, future income taxes are split 50/50.” False. (19% Correct).

5. “You can pay for an adult child to take care of younger children in your household and deduct the cost of child care expenses.” True. (24% Correct).

6. “Net capital losses realized in a given year may be carried back to any of the three preceding tax years.” True. (40% Correct).

7. “You can reap the benefits of a donation to a charity on your 2007 tax return provided the donation is made by March 1, 2008.” False. (26% Correct).

8. “If I redeem or sell units of my non-registered mutual fund in 2007, I will have to include 50% of any realized gain in my 2007 tax return.” True. (28% Correct).

9. “If I donate publicly listed stock, for example BCE stock, to charity, I can avoid paying tax on the capital gain no matter how long I’ve held it.” True. (21% Correct).

10. “I can claim a tax credit for 2007 of up to $500 for each child under 16, who registered this year in a qualified physical activity.” True. (45% Correct).

Filed by Bryan Borzykowski, Advisor.ca, bryan.borzykowski@advisor.rogers.com

(10/22/07)