Hicks on Biz: Canada’s tax system is needlessly complicated BY GRAHAM HICKS FIRST POSTED Edmonton Sun: MONDAY, AUGUST 21, 2017
Will no one rid us of this crazy, illogical, overwhelmingly difficult Canadian tax system?
Our income tax calculations have reached absurd levels of complexity. The cost of compliance – i.e. accountant fees – has become almost as big a burden on small business as taxes themselves.
Canada’s Minister of Finance Bill Morneau is oblivious to the problem; Justin Trudeau’s government has shown no interest in reviewing, overhauling and simplifying Canadian taxation rules.
The problem, at its heart, is quite simple: Band-Aid upon Band-Aid upon Band-Aid.
There has been no major review and reform of the Canadian tax system since 1971. Successive governments have expanded, modified, and changed the rules of the game by adding amendments, more regulations, closing loopholes, adding incentives and so on.
It’s mind-boggling, but can be succinctly illustrated.
The original income tax legislation, the 1917 “Income War Tax Act” was 10 pages long. Today’s 2017 Income Tax Act – the 51st edition of the same – is 2,474 pages. Defining what employee benefits are taxable (or not) takes up 10 pages!
Band-Aid upon Band-Aid produces bewildering and unanticipated tax results. In one case, says Edmonton tax lawyer Carman McNary, a particular company ended up with an 87% taxation rate.
Equally worrisome, say tax experts, is the vagueness of so many terms now being added to the Income Tax Act. Revenue Canada could have one interpretation for years, but then change to a new interpretation with a bigger tax demand that would be retroactive for those same years.
Finance Minister Morneau, citing the need for “fairness” in the tax system, has proposed yet more changes to the current Income Tax Act to end the long-established practice, for small independent businesses, of “income sprinkling” among family members to minimize tax consequences.
The unintended consequences of such a move, says McNary, once all the layers and Band-Aids of past tax incentives or disincentives are taken into account, could completely thwart its intent. “The new rules could end up being especially hard on women, or on family farms fighting to survive.”
Edmonton-based tax analyst Joseph Devaney has started a petition, asking that the federal government at least thoroughly consult and review its proposed income-tax changes with the accounting community, in light of so many possible unintended consequences. The petition can be signed at www. videotax.com/petition.
So why wouldn’t the current Liberal government, with its healthy majority and its full awareness of just how arcane and convoluted Canadian income tax calculation has become, simply move ahead with a full-scale review and reform of Canadian taxes?
“It would be really hard work,” says McNary, who has long lobbied on behalf of small business for tax reform. “The government has to be careful not to harm or disrupt the economy, and, perhaps more important to government itself, not interrupt the flow of taxation revenue.
“Plus there’s no consensus on what an overhauled and simplified taxation system should look like. What’s seen as fair for one government might be unfair for the next.”
I gnash my teeth at having to hire an accountant to handle my personal tax returns. But even at this lowest of low levels, as a semi-retired freelance journalist, Revenue Canada’s requirements are far beyond my limited skill set.
“Don’t blame accountants,” says McNary. “They have to spend more and more time figuring out an ever more complex tax system on behalf of their clients. To a one, they support tax simplification and reform. We’d far rather use our time to help businesses grow and succeed, rather than comply with such a hugely complicated tax system.”
P.S. Tax reform can be done. In the United Kingdom and Australia, tax rules have been simplified to the point where employees no longer file tax returns.
P.P.S. The American tax system is in as big a mess as ours. Despite a massive overhaul and simplification under President Ronald Reagan 30 years ago, it has since ballooned into an unwieldy administrative and interpretative nightmare.