Tax Fairness Starts With The Forms
One of the anachronistic and unnecessary requirements of Canadians, Americans, and residents of many other countries at income tax time is the need to file their taxes. The information the government requires is, for the most part, already in the government’s possession. The tax code is excessively, nigh deliberately, complicated and the time has come to end it.
The printed version of Canada’s Income Tax Act spans 3,690 pages. Throughout this endless document is every rule and condition needed to figure out how much income tax you have to pay each year, how to account for business income, losses, assorted tax credits, obscure exemptions, retirement and medical deductions, and concepts that those outside of accounting have never even contemplated.
Follow these rules incorrectly and the penalties alone are described from pages 2,735 to 2,757, comprising section 162 — and it is not even the only section dealing with penalties.
In order to avoid inadvertent conflict with those 23 pages of penalties, most tax-paying citizens use some form of tax filing or accounting service to navigate this legal gobbledegook. The more they are willing to pay for such a service, the better the expertise in also finding and using clauses in this extensive act to find additional sources of tax deductions and savings.
With tax deductions, especially the obscure ones: if you do not ask, you will not receive. Thus the tax filing system itself is built around benefitting those who have the means to hire someone who understands its deepest intricacies. The more you have, the more tax savings you can buy.
While business owners can find ways to deduct large numbers of expenses that are of questionable necessity for the function of their business, the average worker cannot deduct even the most basic expenses related to their jobs. This disparity and these intricacies have the effect of keeping the working class at work and the owner class in possession.
The Canada Revenue Agency lists 102 types of tax deductions, credits, and expenses. A single one of them, just as an example, entitled “business investment loss,” offers five forms and publications to wade through:
The average citizen starting a small business who does not make a net profit in their first year will be hard pressed to understand all this information, while running their business, without professional help. But a larger risk-taking investor will have an accountant whose profession it is to understand these details.
A minimum wage worker who has to maintain, fuel, and ensure their rusting 15-year old car that can barely survive its annual safety inspection and exists for no other purpose than to go to their minimum wage job can deduct none of these expenses, even though they are objectively for their own business investment, where their “business” is to serve an employer’s needs.
When digging around while trying to make ends meet in a society where it takes more than two full time minimum wage jobs to raise a family, the minimum wage worker might discover that even if they could deduct their vehicle travel expenses, it would not be under the business investment loss — rather it would simply be under “business expenses.” There, they could get as far as learning that personal motor vehicle expenses in the pursuit of their business activity would be tax deductible — except, as an employee and not a business owner, their vehicle expenses to get to work are considered “personal,” once again benefiting the haves over the have-nots, as if the cost of traveling to work is somehow equivalent to going to the beach.
The tax system itself clearly needs to be simplified and made vastly more fair. Any expense reasonably incurred in order to earn income, whatever the role of the person, should be deductible from gross income in calculating net income. Someone who must spend one-third of their salary to get to work, often wearing prescribed clothing, should be able to deduct all of that just as easily as the business owner who must spend a portion of their revenue on that salary in order to stay in business.
The tax code could probably be reduced from 3,690 pages to a few dozen pages through fairness and simplification. Every person contributing their share to the common expense pool that we call a tax base should be able to do so on a level playing field.
Moreover, the tax-filing industry needs to be brought to heel. There are countries where filing taxes is a simple matter of validating that the government’s data is correct without needing to pay an expert to check.
Someone who is entitled to means-tested government support often will not benefit from that support unless they file their taxes. For many, filing their taxes is something they may not be able to do for a variety of reasons, including cost, time, or, more critically understanding the complicated system involved.
The Carney government is bringing in a new program to pre-fill tax filing information in CRA My Account, building on the SimpleFile pilot brought in during Trudeau’s final year, however the system is by invitation only, available only to particularly low-income Canadians that the government estimates at a little over 5 million people. In order to get access to this automatic tax filing assistance program, the government first has to be aware that you are low income — which means you need to have filed your taxes at some point in the past — and your income has to be low enough to qualify.
The existence of SimpleFile and this successor program proves that the government is capable of performing this service for the majority of Canadians. If some want to speak to accountants or professional tax filers to dig into the deeper crevices of tax code or to deal with a more complicated financial situation, that is well within their rights, but it should not be a near-requirement. If the tax code were simplified to no longer structurally benefit the rich, this would also become significantly less common.
For the average Canadian, it is high time that the tax code is simplified and that tax returns are automatically completed by the government, using existing data, requiring no more than a simple confirmation that the information on file is correct, and a simple means to update what is not.
Tax fairness starts with the forms.
I can hear the screams of the accounting and tax law practitioners! You're suggesting putting thousands out of work, but they are the ones who best know how to manipulate the system and still come out ahead.
Very good point, David. The tax system, while fair in brackets, is weighted to the more affluent when applying deductions. A revision of this garbled mess is definitely overdue! This where KISS is direly needed!😅