An independent public policy think tank says the Canadian tax system has become too complicated and costly to administer and should be simplified.
MEI says the Income Tax Act was 4,000 words long when it was enacted in 1917, but now comprises more than 1.1 million words.
“A serious simplification effort is needed to make life easier for taxpayers. Despite its considerable expansion since its creation, the Income Tax Act has not been subjected to a detailed examination for a little over half a century,” says Kevin Brookes, associate researcher at the MEI and author of the report.
Brookes says the number of personal tax credits, which represent exceptions that must be taken into account when completing a tax return, increased by 26% between 1991 and 2015. During this period, four times as many new tax credits were created as were eliminated.
He said the law is so complicated that nearly one third of responses given to taxpayers by Canada Revenue Agency (CRA) call centre agents are wrong.
“Taxpayers end up wasting time and money. On average, the cost of complying with the Income Tax Act amounted to $501 per Canadian household in 2012,” says Brookes. “Tax complexity is also expensive for taxpayers because of the resources the government has to devote to managing its tax system."
From an administrative viewpoint, the Canadian system is one of the costliest among OECD countries, says the report. Canada should take some inspiration from the experiences of the United Kingdom, Australia, and New Zealand, it said, which carried out detailed examinations of their tax systems, for the purpose of simplifying them, shrinking them or abolishing certain tax credits.