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Canada’s complicated income tax system costing Canadians: report

The Canada Revenue Agency headquarters in Ottawa is shown on Friday, November 4, 2011. THE CANADIAN PRESS/Sean Kilpatrick

With the annual income tax deadline just a few days away, Canadians can be forgiven for being a bit more irritable.

Whether you do your own taxes, or hand over a shoebox filled with receipts to an accountant, many would argue the tax system is becoming increasingly complicated.

A new report shows the system isn’t just more complex, but says it’s also costing filers more money.

“Canadian families and businesses incur significant costs complying with the tax system,” states the Fraser Institute report called Measuring Tax Complexity in Canada.

“Those costs include direct spending on items such as accountants, lawyers, and computer software, as well as the financial cost of the time it takes to compile the materials and complete the forms. Governments also incur costs to administer and collect taxes.”


The think tank is calling on the federal government to start simplifying the tax system to save filers both time and money. It may even have the added benefit of helping to reduce some tax-time procrastination.

The report looks at tax expenditures (such as credits, deductions, exemptions and exclusions), tax legislation and tax guides as its measures of tax complexity.

It shows the number of federal personal income tax expenditures has increased 22 per cent since 2000, the text area of tax legislation has increased 19 per cent, and the size of the federal personal income tax guide has grown 25 per cent.

“What’s clear is that all indicators point to an increase in federal tax complexity for Canadian families, businesses and even governments,” said Charles Lammam, director of fiscal studies at the Fraser Institute and co-author of the report.

“A worthwhile goal is to simplify the tax system, making it easier to understand and less expensive in time and money.”

The Fraser Institute is among a growing number of organizations calling on the government to simplify Canada’s tax system. It’s not just about saving money and paperwork, but making Canada a more attractive place to do business, especially for outsiders looking to set up shop here.

In a recent Canadian Chamber of Commerce report highlighting the Top 10 Barriers to Competitiveness in Canada, the country’s costly and complex tax system was in fifth spot.

“Canada’s tax system is in urgent need of reform,” the report states. “It has become increasingly complex, multi-layered, and a costly challenge for Canadian businesses of all sizes.”

It also cited the World Economic Forum’s Global Competitiveness report, which stated tax rates and regulations among the top challenges to doing business in Canada.

“The challenge of tax compliance is significant for businesses of all sizes,” states the Chamber of Commerce report. “A streamlined and more efficient tax regime would free up time and capital for Canadian companies so that they can focus on growing their business, investing and creating jobs.”