As Canadians are wrapping up their income tax returns for the year, many are finding it's not just the actual tax bills that are taking a chunk out of their wallets.
Canadians spent up to $7 billion preparing their personal income tax returns in 2012, according to a Fraser Institute study released April 30. This amounts to an average of $501 per household – higher than the average amount spent on groceries for one month.
"When analyzing Canada's tax system, politicians, pundits and policy makers may talk about the economic cost of taxation but rarely address the costs to Canadians of simply complying with the tax system," said Sean Speer, study author and Fraser Institute associate director.
These costs include amounts spent on accountants, completing tax forms and buying software and other tools, and also takes into account the time and money spent on tax planning and appeals.
British Columbians were the most likely to have paid someone else to do their taxes, with 55.6% of respondents saying they took this route. Those in the Atlantic region spent the least, at 43.9%.
Lower-income Canadians spent a higher percentage of their income on tax compliance, paying 3.3% of their income compared with 0.3% for higher-income Canadians.
As well, the cost of claiming special tax expenditures such as public transit use and youth sports credits that have been introduced in recent years can increase tax preparation costs by a significant amount. Those who claimed at least one of these expenditures spent almost $50 – or 20% – more than those who didn't claim these credits.
"In some cases, compliance costs associated with tax expenditures can significantly impair their financial benefit, which may cause many Canadians to think twice before claiming a tax expenditure," Speer said.
The report said that one of the quickest ways to decrease the costs of tax return preparation would be to reduce the number of claimable expenditures.
"A simplified personal income tax system would be easier to understand and less expensive in time and money for Canadians to navigate," Speer said.
"Given the tax burden faced by Canadians, it makes sense to find ways to reduce the cost of tax compliance."
