Families challenged by increasingly complex tax system

Clients are forced to navigate an increasingly complex tax system, finds the Fraser Institute.

For example, between 2001 and 2014, the number of federal tax credits, deductions and other special treatments (known as tax expenditures) increased from 103 to 128—an increase of 24%.

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The Fraser Institute’s study notes that in 2013, the latest year of available data, the cost of the various tax credits, deductions and other measures was $5,918 per tax-filer.

“Canada is in a unique position to simplify the tax code by reducing or eliminating most of these tax credits and other special treatments, making available resources that would allow the federal government to dramatically reduce personal income tax rates for Canadians,” says Charles Lammam, director of fiscal studies at the Fraser Institute and co-author of the report.

An alternative measure of tax complexity calculated in the study is the number of standardized pages represented by the tax act itself. Between 1971 and 2014, the number of pages (standardized for size) in the federal tax act increased 355%, from 573 to 2,612 pages.

Read: CRA mingling with industry is normal, says practitioner

The study also noted the increasing complexity of provincial tax forms, which compounds the problems identified in the federal system. Between 2000 and 2015, the number of total lines in the tax forms of every province increased. For example, Ontario’s tax forms now have a total of 194 lines, up from 77.

The study explains how each new addition to the tax act, whether it’s a new tax credit, tax rate, or tax law, can add to an already complicated tax system. And the more complex the system, the more difficult—and more costly—that system is to understand and comply with.

“Simplifying the tax code would reduce the time and costs incurred by Canadians in complying with the tax system, leaving more time and resources available for other, more important endeavors,” Lammam says.

Read: Bill Morneau on future tax changes and CPP reform

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.