Confused by mounting number of tax credits? You’re not alone

A series of targeted tax measures from the Conservatives have have added layers of complexity on filers, new report suggests.
A series of targeted tax measures from the Conservatives have have added layers of complexity on filers, new report suggests. THE CANADIAN PRESS / John Woods

You’re not imagining it, personal income taxes, with their mounting number of credits, exemptions, deductions, exclusions, benefits and the like, are growing unwieldy.

A new report Monday underscores the point – just in case the new items that were sprinkled throughout last week’s federal budget hadn’t. The Fraser Institute, the right-wing, pro-small government think-tank from Vancouver, has pulled together a short study that attempts to quantify just how complex an exercise tax filing has become.

The study tries to empirically measure this by looking at three things: Growth in tax “expenditures,” the catch-all term for credits and benefits (such as the Universal Child Care Benefit that was beefed up to $160 a month last week); growth in actual text contained within tax legislation; and last, the similar expansion in the size of tax guides that aid filers down the annual gauntlet.

“All indicators clearly point to an increase in federal tax complexity,” the Fraser report’s authors, Francois Vaillancourt, Marylene Roy and Charles Lammam, concluded.

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MORE: 5 tax breaks and benefits in the federal budget — and who they’re aimed at

On the expenditure front, credits, benefits and the like – which are sometimes referred to as “boutique tax credits”— have multiplied by 22 per cent since 2000, the report said. Critics contend those new measures, such as the Family Tax Cut or “income splitting” benefit introduced in last week’s federal budget, add layers of complexity on filers when the same goal could be achieved in a far simpler way.

For example, a 0.3 per cent across-the-board cut on all federal taxes would amount to the same $2.2 billion in annual money that will remain in the pockets of Canadians under the Family Tax Cut, and the benefit would fall far more broadly across the population rather than the narrower constituency the Conservatives appear to be courting (households whose incomes skew higher).

Others seem to side with the Fraser report’s premise that the tax system could be far more streamlined. BMO economists suggested last week new boutique tax credits would aid Conservatives’ reelection hopes more than the country’s economy.

“This budget extends the strategy of sprinkling a wide array of boutique tax cuts/benefit increases throughout the economy. While that is great for the campaign trail and an extended run of good-news headlines, the economy would be better served by simpler across-the-board income tax cuts,” BMO economists Robert Kavcic and Benjamin Reitzes said.

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Legislative heft

On that second empirical measure, Canada’s tax code itself, the Income Tax Act, has mushroomed in size since 1990, the report contends. One effective way to test that, according to the Fraser Institute, is to simply measure how much text has been added over time.

Since 1990, the sheer amount of text contained in federal income tax legislation has climbed 62 per cent – with credits for children’s fitness, sports equipment and other small deductions that have become the hallmark of the current Conservative government, doing their fair share to gum things up.

Lastly, the report compared federal personal income tax guides between 2001 and 2011, concluding that the documents grew by 25% to accommodate the growth in legislation.

Canada isn’t alone in its propensity to allow tax laws to accumulate. Things grew so out of hand in the United Kingdom that in 2010, the Office of Tax Simplification was formed.

“Canada does not have the equivalent,” the Fraser report said. “That means there is no systemic work underway to measure, let alone reduce tax complexity in Canada.”

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