Canadians are good citizens when it comes to taxes, with 94 percent saying they file each and every year, according to a study released today by BMO Nesbitt Burns. But it appears we’re also lacking insight when it comes to several key areas of the annual ritual.
Need proof? When Canadians were asked about their level of knowledge about how various investments are treated from a tax perspective, the study found that:
- 58 per cent are not sure about how capital gains are taxed
- 62 per cent say they are not knowledgeable about how dividend income is taxed
- 33 per cent lack knowledge on how charitable donations are taxed
- 25 per cent have trouble understanding the tax implications of a Registered Retirement Savings Plan (RRSP)
- 36 per cent lack knowledge surrounding the tax implications of a Tax Free Savings Account (TFSA)
“Dividends are somewhat complicated … and I can understand the confusion around the dividend tax credit,” says John Waters, vice president, head of tax and estate planning at BMO Nesbitt Burns.
“The tax credit around capital gains is a little more clear, but … tax law is always changing. Some people just throw their hands in the air and say ‘I don’t want to deal with it; I’m going to hire someone else to do it.’ It’s like getting someone to paint your house.”
H&R Block senior tax analyst Cleo Hamel says she isn’t surprised to hear of the apparent knowledge gap. “Whether it’s someone filing for the first time or someone starting a business, every year there are that many new filers,” Hamel says. “There are the students who’ve been going to school and whose mom and dad have been taking care of it [filing income taxes].
“There are individuals who have a relatively easy return -- they work, make contributions to an RRSP, make the occasional donation, don’t stray off that. Then they may have life changes and not be aware that life changes have any effect on their taxes.”
The results of the BMO survey weren’t all dismal. The report, which surveyed 1,000 Canadian adults, found that a whopping 94 per cent of Canadians say they’re confident that their completed tax return has taken advantage of all the deductions, credits, or other tax savings that may be available to them.
Almost half prepare their own income tax returns, and 35 per cent plan on using tax software to file this year.
Waters and Hamel both say that people looking for detailed information on taxes visit the Canada Revenue Agency’s website or pick up the printed guides the CRA issues that are available at post offices. The annual pamphlets contain a section called “What’s New?” with vital breakdowns of changes to tax laws.
They also emphasize that people need to keep taxes in mind all year long, not just every spring.
“The pitfall of keeping receipts is people think ‘Oh, it’s just extra work; why should I bother?’” Hamel says. “Even if you keep receipts for your kids’ swimming lessons, you can save $50 on taxes. That’s a lot of money. We should not be considering taxes a once-a-year event. We have to look at taxes as part of our entire financial plan.
“When you decide to invest in a house or buy a car, you talk to professionals, you talk to friends, you get input to help you make a decision,” she adds. “Do that same kind of research to find the things you can legally claim. You do need to take active involvement and ask questions.”