Income taxes: The complexity of the tax system is costly for the poorest Canadians
Montreal, March 12, 2020 – With tax season in full swing, Canadians once again have to devote time and money to filling out their income tax returns. Unfortunately, a lot of them—including many of modest means—will not claim the considerable sums to which they are entitled. This troubling situation is due to an overly complex tax system, as shown in an MEI publication launched today.
“People are leaving a lot of money on the table. For example, 240,000 low-income Canadians eligible for the Canada Workers Benefit do not receive it, which represented over $175 million in 2014 alone. As for the Disability Tax Credit, over a million eligible adults don’t even claim it!” points out Luc Vallée, Chief Operating Officer & Chief Economist at the MEI.
According to Prosper Canada, a charity dedicated to expanding economic opportunity for Canadians living in poverty, over $1.4 billion in benefits of all kinds are not claimed by people who are entitled to them. “The complexity of the tax system is the main reason for this state of affairs,” notes Mr. Vallée. “While the Income Tax Act was 4,000 words long in 1917, today it comprises over 1.1 million words. Just since 2005, it has gotten more than a third longer. It’s a monster that we keep feeding, and it keeps growing.”
The Canadian tax system is full of credits, deductions, and exemptions. The number of these personal income tax breaks and refunds increased by 39% between 1991 and 2015, at which point their total value had reached a little over $84 billion. “Even accountants think our tax system is too complex,” observes Mr. Vallée, recalling that a large majority of them (71%) were of this opinion when polled two years ago.
Yet as the economist notes, the solution is clear, even if our policy-makers seem to have forgotten it: We can, and we must, simplify the tax system. “It would be much more beneficial for the entire population to abolish the multitude of exemptions and tax credits that exist, and replace them with a corresponding reduction in income tax rates, or a raising of exemption thresholds. This would be the best way to help everyone, especially the most vulnerable,” concludes Luc Vallée.
The Viewpoint entitled “When Taxpayers Don’t Get What They Are Due” was prepared by Luc Vallée, Chief Operating Officer & Chief Economist at the MEI. This publication is available on our website.
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The MEI is an independent public policy think tank with offices in Montreal, Calgary, and Paris. Through its publications, media appearances, and advisory services to policy-makers, the MEI stimulates public policy debate and reforms based on sound economics and entrepreneurship.
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