The High Cost of Paying Taxes
Speer, Sean, Palacios, Milagros, Winnipeg Free Press
Most Canadians have completed their personal income-tax returns after frantically organizing their receipts and other documents from the past year. This can be a costly and time-consuming process. Yet the cost of completing personal income taxes -- that is, complying with the personal income-tax system -- is often ignored when people think about the financial burden of taxation.
The fact is, complying with Canada's personal income-tax system imposes a significant cost on Canadian households. These costs come in the form of direct spending on things such as accounting services or computer software and the financial cost of the time it takes to compile the materials and complete the forms. The consequence is Canadians have less time and money to spend on the things they care about, like leisure, work and time with family and friends.
A new study published by the Fraser Institute seeks to estimate how much it costs Canadians to comply with the personal income-tax system each year. The numbers aren't trivial. According to our estimates, altogether, Canadian tax filers incurred nearly $7 billion in tax compliance costs in 2012.
What does this mean for average households and individual tax filers?
This represents about $501 per Canadian household, or more than the average household's monthly grocery bill. As for individual tax filers, we estimate they incurred, on average, $217 in total compliance costs.
And the study finds these costs are borne disproportionately by low-income Canadians who, as a share of their income, dedicate a greater percentage -- 3.3 per cent -- than high-income earners -- 0.3 per cent -- to comply.
One of the main sources of the tax system's complexity is the long list of tax credits, deductions and other special preferences (known as tax expenditures) that has grown over the years. The number of tax expenditures in the personal income-tax system (excluding corporate and sales taxes) is now over 100, covering a wide range of activities such as donating to a political party, purchasing textbooks, or volunteering as a firefighter.
Of course, there are other factors such as the number of tax rates and differing treatment for different types of income that add to the tax system's complexity. …