An Unintentional Tax – the Cost of CRA Compliance :CRA SOTW
The $12.6B hidden tax hit
Smaller businesses have heavier burdens
Garth Whyte, Financial Post
Published: Tuesday, September 02, 2008
You know what hurts even more than paying taxes? Having to spend a ton of money to do so. In the case of Canadian businesses, large and small, we're talking about $12.6-billion a year in professional fees and employee time just to comply with tax law. That's on top of actual taxes paid.
The Canadian Federation of Independent Business published the $12.6-billion figure in a groundbreaking report on tax compliance costs, The Hidden Tax Burden. The research found that businesses of all sizes are paying what amounts to a hidden tax just to comply with the law.
Tax compliance costs are nothing new. Adam Smith in The Wealth of Nations argued the burden of paying taxes should be kept to a minimum. Otherwise, he said, it "may obstruct the industry of the people, and discourage them from applying to certain branches of the business which might give maintenance and employment to great multitudes." In other words, the time spent sorting through tax forms is time taken away from growing the business.
As is generally the case with government regulation, the smaller the business, the heavier the burden. CFIB found that companies with less than five employees averaged $3,928 per employee in tax compliance costs. Meanwhile, businesses with 500 or more employees pay $212 (or $196, according to a recent study commissioned by the Canadian Council of Chief Executives). With small and mid-sized businesses making up more than half of private sector employment and roughly half of Canada's gross domestic product, these extra costs have a direct effect on the country's economy.
The complexity of the tax environment has a direct effect on compliance costs. Back in the 1960s, you could buy a copy of the one-volume Income Tax Act and have all the information to file your taxes. Years of tinkering with that act and other tax laws have created an enormous level of complexity. You really do need professional help to file your taxes. And that's no slight on accountants; they're as frustrated as anyone. They trained to be business advisors, not to spend hours a week on the phone with the Canada Revenue Agency.
Customer service from CRA is a major issue. One large accounting firm told me advice from the agency is so inconsistent that their rule is to phone seven times with a question and follow the majority advice. And they're experts in the field! Imagine the thousands of entrepreneurs who frequently find themselves in that situation.
So, what is the solution? First, there must be a way to measure progress. The CRA and provincial tax administrations need to benchmark and measure tax compliance costs annually. More effort and resources must be put into better customer service and changes in tax policy must be communicated more effectively.
With smaller businesses bearing the brunt of tax compliance costs, there needs to be a continuing process to ease the burden on them. Lastly, tax compliance costs should be factored into any new federal-provincial tax policies. These changes will benefit the Canadian economy and businesses of all sizes. We would all do better if life were a little simpler --let's start with taxes.
--- - Garth Whyte is the executive vice-president of the Canadian Federation of Independent Business, which represents the interests of small and medium-sized business and lobbies on behalf of its 105,000 members at the federal, provincial and municipal levels.
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Miss a Tax Tale Miss a lot!
Pop the link below into your browser to view the entire CRA SOTW Library!
http://canada.revenue.agency.angelfire.com
---------------------------------------------
Alan Baggett – Tax Collector’s Bible
The $12.6B hidden tax hit
Smaller businesses have heavier burdens
Garth Whyte, Financial Post
Published: Tuesday, September 02, 2008
You know what hurts even more than paying taxes? Having to spend a ton of money to do so. In the case of Canadian businesses, large and small, we're talking about $12.6-billion a year in professional fees and employee time just to comply with tax law. That's on top of actual taxes paid.
The Canadian Federation of Independent Business published the $12.6-billion figure in a groundbreaking report on tax compliance costs, The Hidden Tax Burden. The research found that businesses of all sizes are paying what amounts to a hidden tax just to comply with the law.
Tax compliance costs are nothing new. Adam Smith in The Wealth of Nations argued the burden of paying taxes should be kept to a minimum. Otherwise, he said, it "may obstruct the industry of the people, and discourage them from applying to certain branches of the business which might give maintenance and employment to great multitudes." In other words, the time spent sorting through tax forms is time taken away from growing the business.
As is generally the case with government regulation, the smaller the business, the heavier the burden. CFIB found that companies with less than five employees averaged $3,928 per employee in tax compliance costs. Meanwhile, businesses with 500 or more employees pay $212 (or $196, according to a recent study commissioned by the Canadian Council of Chief Executives). With small and mid-sized businesses making up more than half of private sector employment and roughly half of Canada's gross domestic product, these extra costs have a direct effect on the country's economy.
The complexity of the tax environment has a direct effect on compliance costs. Back in the 1960s, you could buy a copy of the one-volume Income Tax Act and have all the information to file your taxes. Years of tinkering with that act and other tax laws have created an enormous level of complexity. You really do need professional help to file your taxes. And that's no slight on accountants; they're as frustrated as anyone. They trained to be business advisors, not to spend hours a week on the phone with the Canada Revenue Agency.
Customer service from CRA is a major issue. One large accounting firm told me advice from the agency is so inconsistent that their rule is to phone seven times with a question and follow the majority advice. And they're experts in the field! Imagine the thousands of entrepreneurs who frequently find themselves in that situation.
So, what is the solution? First, there must be a way to measure progress. The CRA and provincial tax administrations need to benchmark and measure tax compliance costs annually. More effort and resources must be put into better customer service and changes in tax policy must be communicated more effectively.
With smaller businesses bearing the brunt of tax compliance costs, there needs to be a continuing process to ease the burden on them. Lastly, tax compliance costs should be factored into any new federal-provincial tax policies. These changes will benefit the Canadian economy and businesses of all sizes. We would all do better if life were a little simpler --let's start with taxes.
--- - Garth Whyte is the executive vice-president of the Canadian Federation of Independent Business, which represents the interests of small and medium-sized business and lobbies on behalf of its 105,000 members at the federal, provincial and municipal levels.
---------------------------------------------
Miss a Tax Tale Miss a lot!
Pop the link below into your browser to view the entire CRA SOTW Library!
http://canada.revenue.agency.angelfire.com
---------------------------------------------
Alan Baggett – Tax Collector’s Bible