Overly complex tax act causes many to miss out on almost $1.4bn in benefits, says think tank
With tax season in full swing, many households in Canada are taking note of the different incentives that they’re entitled to — some of which can differ from province to province. But according to the Montreal Economic Institute (MEI), the poorest Canadians may be leaving a lot of benefits on the table.
“Since the value of potential tax refunds not claimed by Canadian tax-payers is to some extent ‘invisible,’ it is difficult to measure,” MEI COO and Chief Economist Luc Vallée said in a recent commentary. “However, data on the use of certain programs or tax credits give us an idea of its magnitude.”
Citing an estimate from Prosper Canada, a charity focused on expanding economic opportunity for poor Canadians, Vallée said that more than $1.4 billion in federal benefits are left unclaimed each year by people who are entitled to them.
The statistics pointing to such missed opportunities include:
- Just 31.2% of people eligible for a Registered Disability Savings Plan benefit from it, according to Employment and Social Development Canada;
- Out of more than 1.8 million Canadian adults who are qualified to receive the Disability Tax Credit, fewer than 40% claim it, based on a 2018 senate report;
- More than $175 million worth of entitlements under the Canada Workers Benefit was not claimed in 2014, as admitted by Finance Canada; and
- As of 2016, two thirds of children qualified for the Canada Learning Bond program — around 1.8 million Canadians — were not benefiting from it.
“This situation is partly due to a lack of knowledge and resources,” Vallée said, citing obstacles such as lack of financial literacy, poor computer skills, and inability to access accounting resources. “However, the complexity of the Canadian tax system seems to be a more important reason than all of these.”
He noted that the Income Tax Act was 4,000 words long when it was enacted in 1917; it has grown to exceed 1.1 million words since then, partly due to a 37% surge in content just since 2005. Credits, deductions, and exemptions, he added, increased by 39% between 1991 and 2015, growing to more than $84 billion by the end of the period.
“Even a large majority of chartered professional accountants think that the current system of tax deductions and credits is too complex,” Vallée said, citing an opinion issued by the Chartered Professional Accountants of Canada in 2018.
To solve the problem he urged Canada’s policymakers to simplify the tax system by replacing the country’s multitude of exemptions and tax credits with a corresponding reduction in income tax rates or raising of exemption thresholds.
