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Measuring Personal Income Tax Complexity in Canada

admin — Tue, 03 May 2016 06:47:50 +0000

Canadian families and businesses incur significant costs complying with the tax system. 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. These costs are driven in part by the complexity of the tax system.

This study measures the evolution of tax complexity in Canada’s personal income tax system. It uses three broad categories of empirical measurements: tax expenditures, tax legislation, and administrative tax documents. According to various specific indicators, the system has become more complex over time.

For instance, from 1981 to 2014, the number of federal personal income tax expenditures (which are credits, deductions, exemptions, exclusions, and other preferences) increased from 101 to 128—an increase of 27 percent. The number of tax expenditures was essentially flat up to 2001, after which there was a marked increase. In fact, since 2006, every federal budget has included a new tax credit for specific activities or eligible groups.

For perspective, in 2014, the value of these tax expenditures ($165.0 billion) exceeded total federal personal income tax revenue ($135.7 billion). Indeed, tax expenditures cost the federal government more than it collects in personal income tax revenue.

The study also measures the text area occupied by the Income Tax Act and regulations from 1971 to 2014. The text area is the number of pages multiplied by page size, which measures the area that the legislation would take up were we to lay out all the pages side by side. Over this period, the area of the tax legislation increased 355 percent, from 345,948 cm² to 1,575,537 cm². It is important to measure text area because not only did the number of pages in the Income Tax Act increase, but so did page size. Together, both changes have the effect of magnifying the growth in text area. In standard letter paper format (8.5×11 inches), the space occupied by the tax code represents an increase from 573 to 2,612 pages over the period.

Finally, an analysis of provincial administrative documents (examining the number of documents, pages, and total lines in the tax forms) also points to growing tax complexity. Consider the results for the total number of lines, arguably the most appropriate indicator of complexity since governments can reduce the number of documents simply by combining them, and cut the number of pages by reorganizing blank spaces, and so on—without reducing the complexity of calculations linked to the personal income tax system. From 2000 to 2015, the average number of total lines in tax forms for the provinces (excluding Quebec) increased from 52 to 172.

While Canada’s personal tax system would benefit from simplification, the country does not have the equivalent of the United Kingdom’s Office of Tax Simplification (either federally or provincially). That means there is no systematic work being done to measure, let alone reduce, tax complexity in Canada. This study is part of an ongoing research program at the Fraser Institute that attempts to help fill that void.

Photo and Article Credit: Fraser Institute

Authors:

François Vaillancourt

Charles Lammam

Director, Fiscal Studies, Fraser Institute

Feixue Ren

Economist, Fraser Institute

Marylène Roy

Research Assistant, CIRANO

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PM Cameron releases tax records after ‘Panama Papers’ storm

admin — Sun, 10 Apr 2016 00:37:10 +0000

By Paul Sandle

LONDON (Reuters) – British Prime Minister David Cameron published his tax records on Sunday in an attempt to draw a line under questions about his personal finances raised by the mention of his late father in the Panama Papers for setting up an offshore fund.

The revelations have led to demands for Cameron’s resignation and handed ammunition to opposition lawmakers who questioned why he was reluctant to detail his financial connections with his father.

Cameron took the unorthodox step of releasing the normally confidential details after saying he should have handled the scrutiny of his family’s tax affairs better.

The documents from RNS Chartered Accountants – which cover six years – show Cameron paid tax of 75,898 pounds ($107,198) on income of 200,307 pounds in the 2014-2015 financial year, the most recent one included.

His income comprised his 140,522 pound salary, taxable expenses of 9,834 pounds, 46,899 pounds from half of the share of rent from his family home in London and 3,052 pounds in interest on savings, according to the record.

Scores of politicians and business figures have been implicated in the Panama Papers, including the prime minister of Iceland who has since stepped down. The 11.5 million documents leaked from the Panamanian law firm Mossack Fonseca detail the creation of more than 200,000 companies in offshore tax havens.

While Cameron is not accused of doing anything illegal, he made four different statements over four days about his late father’s inclusion in the documents.

He said on Thursday he once had a stake in his father’s offshore trust and had profited from it.

He said the unit investment trust was not set up to avoid tax but to invest in dollar-denominated shares and that he had paid all taxes due on his own investment, which was worth “something like 30,000 pounds” when he sold out in January 2010, before he became prime minister.

TAX TASKFORCE

Cameron’s admission of fault comes after a torrid period for his Conservative government. It is divided over a June 23 referendum on whether to remain in the European Union, has been forced to backtrack on welfare cuts and has been accused of not protecting Britain’s steel industry.

Seeking to further take back the initiative, Cameron also announced on Sunday a new taskforce, jointly led by Britain’s tax authority and National Crime Agency, to build on the work Britain has done to tackle money laundering and tax evasion.

When Britain hosted a G8 summit in 2013, Cameron put tackling tax avoidance at the heart of the agenda. Some of Britain’s former colonies increasingly rely on revenues from shell companies and trusts that often hide wealth.

“The UK has been at the forefront of international action to tackle the global scourge of aggressive tax avoidance and evasion, and international corruption more broadly,” Cameron said in a statement.

“There is clearly further to go and this taskforce will bring the best of British expertise to deal with any wrongdoing relating to the Panama Papers.”

The government said it had tracked down 2 billion pounds ($2.82 billion) from offshore tax dodgers since 2010, and authorities were already investigating 700 current leads with links to Panama.

The taskforce will receive 10 million pounds of funding to start work, the government said.

(Reporting by Paul Sandle; Editing by Alison Williams)

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