The country’s tax system is too complex for businesses and individuals: Experts
It’s no surprise to payroll professionals the tax system is complex.
As payroll grapples with more than 190 pieces of legislation, it’s obvious there is more to tax than the average person realizes.
Former Auditor General Sheila Fraser called the Income Tax Act “one of the longest and most complex pieces of Canadian legislation” in her 2009 report.
“The (CRA’s) processes for tracking and monitoring issues in the act are not adequate,” her report went on to say. “The agency has no formal database to keep track of the identified legislative issues and their disposition.”
The time and money spent to comply with the tax system adds up to a significant hidden cost and today’s fragile economic recovery makes it a good time to open the dialogue on tax simplification, according to an August study commissioned by the Certified General Accountants Association of Canada (CGA-Canada).
The study points out there have been few attempts to simplify the tax system since its creation in 1917.
With increasing fiscal pressures from demographic trends, and the threat of Canada lagging behind trading partners like the United Kingdom, Australia and the United States on tax modernization, the new study proposes it is the right time to set a clear course to simplify Canada’s tax system, the study said.
It needs to be fairer, more responsive and give more certainty to individuals and businesses, said Carole Presseault, CGA-Canada’s vice-president of government and regulatory affairs.
“We know that Canada needs a fairer, more responsive, more predictable tax system, but how we get there is up to a number of groups… to come together and have that conversation,” she said.
The issues in the tax system have not been looked at for more than 20 years in some cases, she said.
“The time has come,” she said. “The cost of compliance for businesses is huge.”
There has been some reform on the corporate income tax but on a selective basis, she said.
“There are some places where there can still be improvement.”
Payroll taxes are something the U.K. is currently looking into through its Office of Tax Simplification, she said. The office has been mandated to look at whether the tax system creates disproportionate administrative burdens for companies, she said adding Canada should consider following suit.
It’s also about predictability.
“Taxpayers, whether they be businesses or individuals, need to know how much tax they need to pay when they make decisions,” she said.
Businesses in Canada pay $12.6 billion a year to meet compliance requirements in addition to taxes remitted, according to the Canadian Federation of Independent Business (CFIB).
“The bulk of that $12.6 billion figure, just over 90 per cent, which is $11 billion, that’s attributed to what small- and medium-sized businesses have to pay,” said Doug Bruce, CFIB vice-president of research.
Everything a business has to do to ensure they are in full tax compliance is included in the figure, he said.
It includes collecting and storing data for all tax filing, including audit requirements, making tax payments to the CRA, completing tax forms and dealing with the CRA when a business has a question about compliance, he said.
“That’s time taken away from running the business,” he said.
Businesses with less than five employees, which make up about 75 per cent of the business population, pay about $4,000 per worker to comply with tax regulations.
For big businesses it costs about $212 per person, according to the CFIB.
“The Canadian tax system and the complexity of the Canadian tax system is a major cost to business both large and small,” said Niels Veldhuis, vice-president of research at The Fraser Institute in Vancouver.
When you look through the number of taxes, business taxes, payroll taxes it’s a very significant amount of costs, he said.
In 2005, it cost Canadians and businesses around $13 billion to comply with the tax system, he said.
“The complexity of the tax system, in my opinion, is one in which you would want to materially simplify the taxes,” he said.
It’s obvious many organizations agree there is too much complexity in the tax system.
What is not agreed upon is what to do about it.
The Fraser Institute has put forward a proposal that would see an integrated personal and business income tax system in Canada.
“It would integrate the two systems and all income would only be taxed once,” he said. “You would get rid of most of the exemptions, nearly all of the exemptions on both of the personal and business side.”
Businesses and individuals would then be left with a postcard tax return, a simplified, half page tax return, he said.
The outcome would be changes to the system which would mean less administrative related to tax, he said.
“One, you would automatically eliminate huge compliance and administrative costs for businesses, two those employees whether they’re accountants or lawyers that formerly did those activities could go on and do higher productivity yielding activities,” he said.
The plan would see payroll taxes virtually eliminated, with the exception of a basic exemption, he said.
The U.S. is looking at major tax reform of the system because its gotten so complex to comply with, said Veldhuis.
“Canada’s not quite there yet,” he said, but he adds that in the past six years the tax system has gotten more complex with an increased amount of credits including tax breaks for using public transportation and physical activity credits.
“Anytime you increase the amount of credits, you make the tax system obviously more complex and more costly to comply with.”
As payroll grapples with more than 190 pieces of legislation, it’s obvious there is more to tax than the average person realizes.
Former Auditor General Sheila Fraser called the Income Tax Act “one of the longest and most complex pieces of Canadian legislation” in her 2009 report.
“The (CRA’s) processes for tracking and monitoring issues in the act are not adequate,” her report went on to say. “The agency has no formal database to keep track of the identified legislative issues and their disposition.”
The time and money spent to comply with the tax system adds up to a significant hidden cost and today’s fragile economic recovery makes it a good time to open the dialogue on tax simplification, according to an August study commissioned by the Certified General Accountants Association of Canada (CGA-Canada).
The study points out there have been few attempts to simplify the tax system since its creation in 1917.
With increasing fiscal pressures from demographic trends, and the threat of Canada lagging behind trading partners like the United Kingdom, Australia and the United States on tax modernization, the new study proposes it is the right time to set a clear course to simplify Canada’s tax system, the study said.
It needs to be fairer, more responsive and give more certainty to individuals and businesses, said Carole Presseault, CGA-Canada’s vice-president of government and regulatory affairs.
“We know that Canada needs a fairer, more responsive, more predictable tax system, but how we get there is up to a number of groups… to come together and have that conversation,” she said.
The issues in the tax system have not been looked at for more than 20 years in some cases, she said.
“The time has come,” she said. “The cost of compliance for businesses is huge.”
There has been some reform on the corporate income tax but on a selective basis, she said.
“There are some places where there can still be improvement.”
Payroll taxes are something the U.K. is currently looking into through its Office of Tax Simplification, she said. The office has been mandated to look at whether the tax system creates disproportionate administrative burdens for companies, she said adding Canada should consider following suit.
It’s also about predictability.
“Taxpayers, whether they be businesses or individuals, need to know how much tax they need to pay when they make decisions,” she said.
Businesses in Canada pay $12.6 billion a year to meet compliance requirements in addition to taxes remitted, according to the Canadian Federation of Independent Business (CFIB).
“The bulk of that $12.6 billion figure, just over 90 per cent, which is $11 billion, that’s attributed to what small- and medium-sized businesses have to pay,” said Doug Bruce, CFIB vice-president of research.
Everything a business has to do to ensure they are in full tax compliance is included in the figure, he said.
It includes collecting and storing data for all tax filing, including audit requirements, making tax payments to the CRA, completing tax forms and dealing with the CRA when a business has a question about compliance, he said.
“That’s time taken away from running the business,” he said.
Businesses with less than five employees, which make up about 75 per cent of the business population, pay about $4,000 per worker to comply with tax regulations.
For big businesses it costs about $212 per person, according to the CFIB.
“The Canadian tax system and the complexity of the Canadian tax system is a major cost to business both large and small,” said Niels Veldhuis, vice-president of research at The Fraser Institute in Vancouver.
When you look through the number of taxes, business taxes, payroll taxes it’s a very significant amount of costs, he said.
In 2005, it cost Canadians and businesses around $13 billion to comply with the tax system, he said.
“The complexity of the tax system, in my opinion, is one in which you would want to materially simplify the taxes,” he said.
It’s obvious many organizations agree there is too much complexity in the tax system.
What is not agreed upon is what to do about it.
The Fraser Institute has put forward a proposal that would see an integrated personal and business income tax system in Canada.
“It would integrate the two systems and all income would only be taxed once,” he said. “You would get rid of most of the exemptions, nearly all of the exemptions on both of the personal and business side.”
Businesses and individuals would then be left with a postcard tax return, a simplified, half page tax return, he said.
The outcome would be changes to the system which would mean less administrative related to tax, he said.
“One, you would automatically eliminate huge compliance and administrative costs for businesses, two those employees whether they’re accountants or lawyers that formerly did those activities could go on and do higher productivity yielding activities,” he said.
The plan would see payroll taxes virtually eliminated, with the exception of a basic exemption, he said.
The U.S. is looking at major tax reform of the system because its gotten so complex to comply with, said Veldhuis.
“Canada’s not quite there yet,” he said, but he adds that in the past six years the tax system has gotten more complex with an increased amount of credits including tax breaks for using public transportation and physical activity credits.
“Anytime you increase the amount of credits, you make the tax system obviously more complex and more costly to comply with.”
