Most of us have calendar dates we look forward to—birthdays, anniversaries, New Year’s Eve. What about April 30, tax deadline day? Is it a happy day or a frightening deadline, with a nasty compliance burden before you get there?
Canadians spend a lot of time and money complying with our tax system, which has grown more complex, as the system adds tax benefits and credits, exemptions and deductions. The costs, which include time, tax software, professional legal and accounting help, and record-keeping, apply to individuals, businesses, charities and governments.
How do we know the system is getting more complex?
In our recent study, we looked at three broad indicators to measure tax complexity.
Firstly, tax expenditures—the special provisions governments implement to target specific actions or groups of taxpayers. This is where we find tax credits, deductions, exclusions and targeted measures such as the textbook tax credit or Registered Education Savings Plans (RESP). Most of these provisions are meant to influence or distort economic decision-making, for good or ill. And they mostly increase compliance costs and make the process more complicated for taxpayers.
Since 1996, the number of federal tax expenditures has increased by 32 per cent. And the dollar value (inflation-adjusted) has grown by 55 per cent as has the inflation-adjusted dollar value of business tax expenditures (51 per cent) and goods and services tax expenditures (48 per cent).
Tax legislation has also grown in size and volume. With more rules, the act and related documents get longer. Between 1990 and 2018, the text area of the Income Tax Act and related regulations increased 72 per cent. There are now nearly 3,000 pages in the document and the page size has grown by 69 per cent over three decades.
Another indicator of tax complexity is the increasingly difficult process of filing a tax return. The length of the federal personal income tax guide, which provides instruction on how to file your taxes, has increased by 63 per cent for Ontario over 15 years. This steady increase means taxpayers must read more every year if they hope to comply with the tax code.
There’s also been a huge surge in popularity of personal and business tax-filing tools, which reduce the time and cost of compliance. Paper filing is on the wane as more taxpayers file their returns electronically, directly through Netfile for individuals or by way of Efile through preparers.
Canadians also now have access to an “Auto-fill” option, which enables users to download information to populate their tax returns, which in turn are filed electronically through the Canada Revenue Agency.
Is that good? While the new mechanisms address some compliance issues, they solve almost none of the underlying complexity issues of the Canadian tax system. The ability to file with less difficulty and inconvenience does not mean taxpayers understand their obligations or the choices available within our system. Broader reforms to simplify the tax structure itself would do better on that front.
Clearly, taxes have got a lot more complicated over time, especially since the 1990s. That complexity consumes time and money for individuals, businesses and governments. April 30 does not need to be this complicated.
Jake Fuss and Finn Poschmann are analysts at the Fraser Institute.