Archive for April, 2013

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What It Costs Canadians to Comply with Their Personal Income Taxes

The Fraser Institute published an interesting paper by Francois Vaillancourt in April 2010 on what it costs Canadians to comply with their personal income taxes. Leger Marketing did a detailed survey for the national think tank on a sampling of 2000 tax filers based on the 2007 tax filing year. The key results: the use of a tax pro has increased significantly over the past 20 years. 39% of Canadians paid a pro in 1986; 51% of Canadians paid in 2007.

In the meantime, 31% still do it themselves and 18% rely on friends, family, or a non-profit organization. Of those who filed on their own, 53% used software, a number that is increasing. The software users were younger –  ages 25 to 34; those who used paper were older – 55 and older. Also, men were more likely than women to do their own returns, and richer people and those with more complex sources of income such as rental or self-employment tended to use a professional. Makes sense.

Here’s what’s even more fascinating: Canadians spend an average of 5 hours gathering receipts and forms, preparing meeting with paid preparers and/or completing their tax returns. When time spent on tax planning and audit-defence is included, Canadians spend about 7 hours complying with CRA. The average Canadian spent an average of $61 on payments to tax preparers and purchasing software.

All in, based on the value of time and cost of resources required in filing personal income tax returns, the Fraser Institute calculated it costs approximately $215 to comply with CRA’s requirements. Those costs are higher for the self-employed or those receiving rental income, capital gains, or foreign investment income (approximately $300). Adding on 2% per year for inflation, that means about $235-$330 in today’s dollars.

Finally, it’s worth noting that married couples have higher compliance costs than singles, for obvious reasons, but families making use of special tax credits like the children’s Fitness Tax Credit, Public Transit Tax Credit, Education Tax Credits, and so on, also pay more.

Total compliance costs? It ranges from $4 billion to $5.8 billion according to the report. That’s a significant industry in Canada.

It’s Your Money. Your Life. The more organized you are all year long, the less time and money it costs preparing your return – whether you use a pro or not. Make a tax filing resolution for 2013 – get your January to April receipts and documents in order now and stick to it! It will pay off.

Evelyn Jacks is President of Knowledge Bureau and author of 50 books on tax and personal wealth management. She is also the founder and director of the Distinguished Advisor Conference (DAC). The theme of this year’s three day think tank in Ojai, CA Nov 10-13 will be “Back to the Future – Collaborative Wealth Management.”  Follow Evelyn on Twitter at @EvelynJacks.


A Slippery Slope: Should We Mess with Canadians’ High Voluntary Tax Compliance Rate?

In Canada, we have a tax system based on self-assessment and voluntary compliance. It works extremely well, considering how complex the topic is, with the overwhelming majority of individuals and corporations meeting their obligations on time.

It is exactly for these reasons that the proposed payment of a 15% finder’s fee to those who help the government identify extensive international tax fraud may set a worrisome precedent that could erode the CRA’s vision and values and with it, the principles we so happily comply with.

According to the Canada Revenue Agency’s Annual Report to Parliament 2011-2012, Canadians have an extraordinarily high rate of compliance when it comes to paying their taxes: 94% of individuals reported on time while 91% paid their taxes on time. In the case of corporations, almost all corporations filed their returns within 5 years; with 90% of corporations paying on time.

The overwhelming conclusion, highlighted in the report, is that the vast majority of Canadians understand the importance of responsible citizenship and the connection between a sustainable tax system and our quality of life here in Canada.

The underground economy in Canada, meanwhile has increased at a slower pace than the economy as a whole between 1992 and 2008, according to Statistics Canada. It was estimated at an upper limit of $36 billion in 2008, which is up 90% from 1992 – certainly on the service, a poor trend. But during the same period the nominal gross domestic product (GDP) more than double at 128%.

According to the report, the main reason that the underground economy increased more slowly was that industries that traditionally are involved in “under the table” activities represented a declining portion of the overall economy. This includes three significant sectors that accounted for 60% of the total value added of all underground activities: construction (30%), retail trade (16%) and accommodation and food services (12%).

There is no question that the underground economy hurts both the business community and taxpayers in general. In 1999 the Auditor General released a report on the matter and illustration how the underground economy hurts competition, illustrating that a worker’s take home pay can be increased by 30-40% when income taxes are not withheld at source and other payroll deductions are not made by the employer. It’s quite difficult for honest businesses to outbid businesses operation in the underground, and that’s not fair.

In 2011-2012, CRA collected about $419 billion in taxes and duties, identified over $14 billion in non-compliance. The 2012-2013 objective on non-compliance activities is to focus on higher risk cases, of which the international and large business category are the largest group, representing $5.6 billion or 40% of the non-compliance activities. Yet, this is still only 1% of all the taxes and duties collected by CRA.

A well-functioning tax and benefit system, to quote CRA’s annual report to parliament, is essential to have a healthy economy, a sustainable infrastructure and a strong democracy. It’s to our collective advantage to empower CRA to catch tax cheats.

But does the introduction of a finder’s fee compromise our admirable tax culture of voluntary compliance and self-assessment? What do you think? Please weigh in on our poll this month to voice your opinion.

It’s Your Money. Your Life. When there is tax leakage, everyone pays more for the incredible privilege of living in Canada. Be sure you do your part to encourage voluntary compliance by filing your family’s tax return by midnight April 30.

Evelyn Jacks is President of Knowledge Bureau and author of 50 books on tax and personal wealth management. She is also the founder and director of the Distinguished Advisor Conference (DAC). The theme of this year’s three day think tank in Ojai, CA Nov 10-13 will be “Back to the Future – Collaborative Wealth Management.”  Follow Evelyn on Twitter at @EvelynJacks.


Economic Recovery – It Could Be Remarkable!

Canada’s household wealth grew at an annual rate of 7.8% between 2000 and 2012 according to the 2012 Credit Suisse Global Wealth Report, which also predicted last October that with moderate and stable economic growth, total household wealth will rise over the next five years by 50% around the world.

Moreover, the number of millionaires worldwide is expected to increase by about 18 million people, reaching 46 million in total by 2017. While China will surpass Japan as the second wealthiest country in the world, it is the USA that will remain on top.

The global economic recovery, by this account, will be remarkable. So why is Canada’s  immediate future painted with a “Cloudy Horizon” in the Report’s headline? This is where reading the fine print matters.

Canada’s rise in wealth is actually more modest than the 7.8% figure projects – only 3.7% in the 12 year period, when you take into account currency fluctuations. In addition, wealth per adult in Canada is 13% lower than it is in the US – here at $227,700 US vs. $262,400 in US.

While only 8% of the adult population of the world has assets that exceed $100,000 US, here in Canada our median wealth is $81,610 per adult and this wealth is much more equally distributed than in the US where median wealth is only $38,800.

And, we do have 842,000 millionaires here in Canada. We account for 3% of the top 1% of global wealth holders – quite remarkable for a country that has only 0.5% of the world’s total population.

But, while more than half of our wealth is held in financial assets, which is similar to the US, our rapid growth in mortgages has accounted for a large increase in household debt. It is not yet clear, says the Report, whether our final landing will be hard or soft in this area. Further, in a resource-intensive country like Canada, falling commodity prices are a concern.

What does it all mean? If Canadians can stay employed, manage household debt, and grow our economy, we will be in a great position to weather the uncontrollables, like future currency fluctuations or continued uncertainty in the financial markets.

It’s Your Money. Your Life. As the song goes. . .don’t it always seem to go, that you you don’t know what you got till it’s gone? Hanging on to wealth, by paying attention to debt is important.

Evelyn Jacks is President of Knowledge Bureau and author of 50 books on tax and personal wealth management. She is also the founder and director of the Distinguished Advisor Conference (DAC). The theme of this year’s three day think tank in Ojai, CA Nov 10-13 will be “Back to the Future – Collaborative Wealth Management.”  Follow Evelyn on Twitter at @EvelynJacks.