An open letter to Prime Minister Trudeau, Finance Minister Morneau and Minister of Revenue Lebouthillier from a frustrated accountant!
I am a fairly young Chartered Professional Accountant working in the Greater Toronto Area. I look young but have started to notice some grey hair due from practicing my profession.
I file tax returns for individual Canadians. My clients are regular people, low and middle income Canadians, self-employed individuals and very hard working small business owners.
The bureaucracy we have to deal with at the Canada Revenue Agency has been absolutely horrendous. I can no longer stay silent. I must speak up and try to effect some positive change in regards to our unnecessarily complicated, unfair and punitive tax system.
The income tax system, as it stands right now, is making peoples’ lives miserable. There is no other way to describe it.
Anyone who has had any interaction with the CRA knows what I am talking about. It is an absolute nightmare, whether for individual taxpayers, the self-employed or small business owners.
In 1917, when the income tax was first established in Canada, the “Income War Tax Act” was only 11 pages long and it could be read in 20 minutes. Today, the “Income Tax Act” is 3,000 pages long and contains over 1,000,000 words.
In 1917, only the top 2% of income earners had to file a tax return. Today, everyone does. As of 2012, Canadians were spending upwards of $7 billion every year to comply with the income tax system. The budget for the CRA is now over $4 billion every single year.
On the individual side, our tax system is riddled with countless tax credits and tax deductions. People are afraid to file their own tax returns, which allow people like me to earn a nice living.
I lose sleep every night thinking about how my job would be wholly unnecessary if we simplified the tax system. All that needs to be done is abolish every single tax deduction and tax credit and then very simply, lower the tax rates, to make up for it. This would be fair for every single Canadian.
Currently, every time someone claims a tax credit or deduction, there is a risk that the CRA will request to see backup documentation to prove the claim was made correctly. This, in and of itself, makes sense.
However, this process of verifying the claims often results in many errors, both on the part of taxpayers as well on the part of the CRA. All these errors leads to “objections”, “appeals”, “tax court”, “adjustments”, “re-assessments” and so forth.
This all costs a lot of money, both for the CRA and for taxpayers. A bloated budget at the CRA is required to fund tax offices all across the country full of diligent CRA employees reviewing peoples’ tax returns, sending out letters to taxpayers, and processing information received from taxpayers.
Furthermore, taxpayers must pay their accountants, lawyers, and other advisors, to interact with the CRA on their behalf, because they are obviously too afraid to.
Taxpayers receive unexpected tax bills from the CRA because their tax returns were re-assessed as a result of all these insane tax credits and deductions, sometimes going back in time for more than several years.
This is very unfair because people simply do not budget for unexpected tax bills and can’t afford to pay these bills. The CRA forces people to go through very intrusive personal financial disclosures in order to approve a payment plan that is acceptable to them.
Every single tax credit and tax deduction adds complexity, uncertainty and costs to our tax system. Every one of these credits and deductions increases the necessity for taxpayers and their advisors to have to interact with the CRA whether by mail, fax, online mail, or phone. Every single one of these interactions is inefficient, wasteful and costs money.
The goal of a tax system should be to collect tax in the simplest most efficient way possible. It seems, from my personal experience of running my own tax filing practice for the past six years that Canada’s current tax system is designed exactly in the opposite way.
My heart rate increases every time I have to call the CRA. The agents are usually very nice on the phone but I am frequently on hold for five minutes, or ten minutes, or twenty minutes or even more.
Sometimes, certain departments don’t even answer the phone. I had to file a “service complaint” about the “non-resident tax department” because they simply do not answer their phones.
The tax system is riddled with unfairness and irrationality. Perhaps, in my opinion, one of the most insane aspects of the tax system is that the amount of tax that a person must pay is calculated based on their individual income but the amount of benefits a family receives, such as Canada Child Benefits, or GST credits, is based on combined family income.
This is very clearly double dipping. The government wins on both ends. How can you have it both ways? Either you use family income or individual income. Most Canadian families budget together as a family. The two spouses calculate their combined income, then look at all their combined expenses and then see how much they have left over at the end of the month, if anything.
However, income taxes are calculated based on individual income, such that a family where one spouse earns $100,000 and the other spouse earns nothing pays thousands of dollars more in income tax than the family that has two spouses earning $50,000 each. In both families, the income is $100,000 so why should there be a difference?
A vast simplification and reform of the Canadian tax system for individual taxpayers is required immediately. Every single tax deduction and tax credit should be abolished and the tax rates should be lowered across the board to make up for it.
This idea can potentially be revenue neutral so no one should disagree with it. Your government and future governments should stop using the income tax system to try and engineer society to your liking and stop using the tax system to attempt to change people’s behaviour.
It is simply not worth the high cost, both in the $4 billion plus budget for the CRA and the $7 billion that Canadians spend annually hiring people like me to file their tax returns, to use the income tax system, as a tool to fix all of society’s problems.
If every credit and deduct were abolished, people would be able to file their own tax returns without the need for accountants and tax lawyers and the CRA would have no need for all the billions of dollars of different departments that deal with individual tax.
Many other countries have such a simple system in place such as the UK, Denmark, Estonisa, Israel, Sweden, Spain, Finland, Norway and Iceland. If those countries can do it, why can’t we?
For those Canadians who are adventurous and take a risk by becoming self-employed and starting their own business, the tax system is literally a nightmare.
Self-employed people and business owners have to worry about the filing of GST/HST returns, collecting GST/HST from their clients and customers, remitting the GST/HST on time to the CRA, calculating payroll source deductions from their employees pay, paying the source deductions on time to the CRA, filing the T4 slips and summary on time every year, filing their corporate tax return and paying their corporate taxes on time, and they still have their individual tax return to worry about. The tax system is an absolute mess for business owners.
Business owners must become tax collectors for the government. The obligation of every single small business owner to collect GST/HST as soon as they hit $30,000 of revenue is just pure evil.
Why force these very hard working people to collect additional tax on top of their income when they are already paying tax from their income itself? This is just an added level of bureaucracy for the business owner and self-employed individual to deal with.
I have had clients who opened up HST accounts in error, never collected HST, sought to close the accounts but first had the CRA arbitrarily re-assess them to have collected thousands of dollars in HST which they never did collect!
I have had clients had their HST returns audited to prove the HST credits that they were claiming on their purchases. These audits are a nightmare to deal with for taxpayers and their advisors.
The $30,000 exemption limit for small suppliers has not changed with the level of inflation since it was first implemented! The current exemption limit is way too low. Someone who only earns $30,001 must register for and collect HST. But this person, most likely, does not have the money to hire an accountant or bookkeeper to help them with their HST returns.
I really don’t think that the people who work at CRA and our politicians in government realize how hard it is for self-employed people and small business owners. These people have serious cash flow issues. I see it every day in my practice. Money comes in their bank account from their revenue and it’s like a miracle and a blessing for them. They need every penny.
I beg and urge all my clients to set aside the HST they have collected so they can pay it out to the CRA as required. But they tell me they can’t because they need every penny that comes into their bank to pay their employees and pay their own suppliers and bills.
The CRA, the politicians, and the academics who make these rules simply do not understand what it’s like to be self-employed or run a small business where there is no bi-weekly pay cheque coming in.
They expect self-employed and small business owners to collect money and set it aside but that in and of itself is very onerous, punitive and leads to way too many unintended consequences. We must figure out a way to have a tax system where we stop forcing every single self-employed individual and small business owner to become a tax collector on behalf of the government.
There are very onerous and unfair penalties for late filing of HST returns and penalties and interest for not paying HST on time. It is completely unfair that this requirement exists in the first place and even more unfair that penalties and interest are charged for late payments and late filings.
If the government wants to collect sales taxes, they should find an easier more efficient way! Don’t force every small business owner to become your tax collector!
The current system of payroll tax deductions has made it impossible for small businesses to hire employees. Small business owners and self-employed people avoid hiring employees at all costs for two main reasons.
The first reason is the actual cost itself in terms of the employer having to match the employee’s CPP contribution and pay 1.4 times the amount of their EI contribution.
The second reason is that calculating the correct amounts of deductions, paying the deductions on time to the CRA each month or quarter and filing T4 slips is a daunting complicated process that small business owners and self-employed people are terrified of.
I can tell you, from first-hand and experience, that the obligations the CRA places on employers, especially small business employers, is discouraging people from hiring more workers and discouraging people from growing their businesses. There are penalties and interest charged on late payments and late filings which can really add up.
Perhaps the craziest aspect of our tax system for self-employed and small business owners is the requirement to report their net income at the end of the year based on “accrual accounting” as opposed to “cash accounting”.
The most logical way to calculate taxes payable would be based on the money you actually made during the year, meaning the physical money that came into your pocket. How else would someone be able to pay tax if not on money actually received?
Well, currently, our system works such that if someone “earned revenue” during the calendar year but did not collect that revenue yet from their customer because the customer is paying 30 days, 60 days or 90 days or more later, well that still counts as revenue and that taxpayer still has to pay income tax and HST collected, even though nothing was collected!
This obviously makes no sense at all. From an accounting perspective it does make sense, because the revenue was in fact earned, so from an accounting financial statement perspective it is logical.
However, taxes should be calculated on a definition of income that was actually earned physically so that the taxes are based on ability to pay. There are many other examples of how business income is calculated on a non-cash basis that it makes it very unfair for taxpayers.
To fix all these problems, I propose and urge the government immediately to abolish the requirement for self-employed individuals and small business owners to register for and collect GST/HST as well as abolish the employer portion of CPP and EI and the requirement to make deductions at source or file T4 slips and also allow calculating tax on cash-based accounting as opposed to accrual based accounting.
Meaning, the government should immediately raise the $30,000 exemption for GST/HST to perhaps $250,000. So every self-employed person or small business owner who earns less than $250,000 of revenue would be completely exempt from registering for and collecting the GST/HST.
Also, every self-employed person or small business owner with less than $250,000 of revenue should be completely exempt from making deductions from an employees’ pay or paying an additional employer portion of CPP and EI.
The way this would work is that the employee working for a small business owner would be responsible to pay their own CPP, EI and income tax at the end of the year, similar to how the small business owner is responsible to pay their own taxes.
Adopting the above proposals would be a huge boon to self-employed people and small business owners and encourage more people to start their own businesses and hire more people. It would save countless headaches, stresses and frustrations, not to mention a nice lowering of their accounting fees, for the small business owner.
In conclusion, Prime Minister Trudeau,
Finance Minister Monreau, and Minister of Revenue Lebouthillier, I hope you
will read this letter, take it to heart, and enact the changes and proposals
noted herein in order to help every single Canadian and relieve them of the
insane costly horrible burden that is our tax system. I look forward to hearing
Neal Winokur, CPA, CA
[email protected] www.winokur.ca
Asked to define “middle class” during a year-end television interview, Prime Minister Justin Trudeau glibly answered that Canadians know what it is; unable to define it himself.
This, after he concocted the Soviet-sounding Ministry of Middle Class Prosperity and tapped Ottawa-Vanier MP Mona Fortier to head it up; herself stumped on local radio about what constituted the middle class in Canada, or what her duties entailed.
So how about attempting to determine “middle class” by what it is not? And just for fun, let’s use some Liberal behaviours from the past to assist–consider them a window into future expectations for this government.
For starters, middle class Canadians are not seconding government jets for a Costa Rican Christmas like Trudeau has done.
According to the PM’s New Year’s Eve itinerary, he will ring in 2020 at this tropical locale while middle class Canadians suffer through another winter, and now pay the Liberals’ carbon tax for the privilege of heating their homes.
If this weren’t galling enough, former Environment Minister Catherine McKenna continues her incessant Tweet parade about “transitioning to a net zero carbon economy” while her boss burns aviation fuel like Leonardo DiCaprio.
Of course, Leonardo pays for his jet travel and luxury yacht trips while Trudeau bills the taxpayer because nothing says middle class Canadian like paying for a trust fund millionaire’s exotic vacations.
And speaking of sunny holidays for the rich and famous, who could forget Trudeau’s visit to Aga Khan’s private Bahamian Island in Christmas of 2016?
Then-ethics commissioner Mary Dawson determined that the trip broke conflict of interest law–Trudeau’s first of three such transgressions–but by now, most middle class Canadians understand that the rules only apply to them, not the privileged like Trudeau.
Given this do-as-I-say-not-as-I-do track record, expect more hypocrisy, more elitism and more condescension from the Liberals’ minority regime in 2020, as their government boldly takes risks that middle class Canadians and those struggling to join them, will ultimately endure.
But before getting into the risks that a string of deficit budgets or new environmental legislation creates, the government’s stance on Islamic State “foreign travellers” is very instructive.
Dozens of these ISIS perps–60 by government estimate–have returned to Canada and are simply allowed to live freely among the general population.
Some even gave media interviews bragging about their terrorist activity overseas, while ex-Public Safety Minister Ralph Goodale made excuses about why it’s so difficult to prosecute them.
No biggie, right?
Rank-and-file Canadians would simply take the risk on behalf of this feckless and impotent policy of “de-radicalization” and “reintegration”: on the buses, the subways and in the public square, while guys like Trudeau enjoy drivers and round-the-clock security.
While British troops were hunting their homegrown ISIS perps on the battlefield, federal Liberals were planning therapy sessions for our “foreign travellers”.
And as Trudeau admitted during an Edmonton town hall in February 2018, the RCMP would monitor these enemies of the state 24/7, at great expense of manpower and resources.
So the Liberal idea of creating a benevolent and caring society on the backs of middle class Canadians continues apace and comes in a variety of flavours too, like the federal carbon tax which ramps up to $30-per-ton in April 2020 for jurisdictions without their own schemes.
Don’t forget that Liberals gave carbon tax exemptions to ‘energy intensive-trade exposed’ industries and placed the burden on–you guessed it–middle class Canadians.
See how easy middle class Canada is to define, once the Liberals’ rose-coloured glasses are removed.
So what if the price of gasoline becomes too expensive for some to fill up their vehicles, or if people lose their jobs, as some 175,000 resource sector workers in Alberta have since Trudeau took power in 2015.
According to McKenna, people can simply be “retrained” for new jobs in the “green economy”, and car owners, well maybe they should switch to using public transit or riding bicycles.
For someone privileged enough to do graduate studies at London School of Economics and a law degree at McGill, one gets the impression that the idea of “risk” for McKenna is somewhat different than how middle class Canadians view it.
Same goes for our trust fund PM, or his millionaire Finance Minister Bill Morneau who justifies adding another $100 billion in federal debt over the next four years because interest rates are cheap and our debt-to-GDP ratio is manageable.
As Morneau borrows Canada’s way into his idea of “prosperity”, keep in mind that he and his cohorts will be collecting gold-plated government pensions when our children are picking up the tab for their reckless spending.
So sit tight middle class Canadians. Liberals have big plans for 2020 and much of it involves spending your money to tell you how to live your lives.
Parliamentary Budget Officer Yves Giroux has released the 2019 Economic and Fiscal Update, in it, he urges MPs to take a serious look at how the government plans to cut spending, while also pointing an increasing debt-to-GDP ratio.
According to the PBO report released on Thursday, the federal government has stated it will cut $7.5 billion over five years, equating to a cut of $1.5 billion per year, but has provided “incomplete” information regarding where and how the cuts will be made.
“No details have been published regarding the process or the criteria that will be used to assess programs, making it difficult to determine the viability of these savings,” the PBO report states. “Parliamentarians may wish to request details on the specific mix of tax policies and operational actions the government plans to introduce to reach the $1.5-billion annual target.”
The office also raised concerns over the potential increase in the debt-to-GDP ratio.
“The fiscal outlook… does not meet the government’s commitment to reducing debt relative to GDP, as the government is forecasting a 31 percent debt-to-GDP ratio in 2019-20 and 2020-21, higher than 30.8 percent in 2018-19,” Thursday’s report states. “A combination of additional spending restraint, revenue increases or faster economic growth would be needed prior to March 31, 2020, to put the debt-to-GDP ratio on a declining path in 2019-20.”
The increase in debt-to-GDP notably directly contradicts statements made by the PM and his steam, including in the most recent mandate letter given to Mr. Morneau.
The fiscal update from Finance Minister Bill Morneau’s department talked up work on the Trans Mountain pipeline expansion his government nationalized for $4.5 billion in 2018, but the extent of promised Indigenous ownership remains to be seen.
“We are in the process of discussing with Indigenous people the potential for their ownership…that potential goes right up to the entire ownership possibly,” said Morneau on Monday following the release of his department’s fiscal update
“But we’re not nearly there yet so we don’t yet have a sense of the interest. We don’t yet have a sense of which of the Indigenous peoples impacted would be keenly interested and capable of moving forward.”
Since Prime Minister Justin Trudeau’s offer to sell indigenous buyers 100 percent of the project – an existing, operational 1150km bitumen pipeline and the project to twin it – three buyers have emerged.
These include the Western Indigenous Pipeline Group whose First Nation partners live on the TMX right-of-way, Project Reconciliation and Alberta Iron Coalition.
Additionally, Métis settlements in Alberta already affected by the oil patch say they are being left out of the entire discussion on future development decisions related to TMX.
The Post Millennial has spoken to each of these Indigenous interests previously, except Alberta Iron Coalition; all are bullish on owning the project.
Métis remain supportive of the pipeline expansion, but want more attention paid to managing cumulative impacts from development to date, before TMX triples the current pipeline’s volume of 300,000 barrels/day.
While Western Indigenous Pipeline Group CEO Joe Dion insists that Ottawa is duty-bound to deal with them first as their interests are directly bisected by TMX, Morneau made no commitments.
“We’re not far enough along to get to a conclusion on (indigenous ownership) and certainly not far enough along to get to any idea of whether one group versus another group would be involved in that,” the minister said on that question.
Adding some uncertainty to TMX fortunes are six coastal First Nations in British Columbia, who are at Federal Court of Appeal this week to argue the second round of consultations for the pipeline expansion were again, inadequate.
The Tsleil-Waututh and Squamish Nations scored their first victory against the Trans Mountain project back on August 30, 2018, after the federal appeals court quashed original National Energy Board permits.
Within 24 hours of this decision, Kinder Morgan shareholders voted to sell Trans Mountain to the Government of Canada and Ottawa re-started consultations with affected First Nations.
The national federal debt is currently in excess of $675 billion, about 30 percent of our annual Gross Domestic Product of $2.14 trillion or what’s referred to in fiscal policy-speak as ratio of debt-to-GDP.
And this federal debt-to-GDP metric, combined with low interest rates is how Finance Minister Bill Morneau justifies continued deficit spending to the tune of nearly $100 billion more over the next four years.
“Our intent is to make those investments and to do it in a way that will help us grow our economy,” said Morneau on Monday of the continued red ink noted in his government’s fall fiscal update for the country.
According to Finance department figures, on the current trajectory of government revenues and spending, our GDP ratio that will settle down slightly from this budget’s 31 percent, to 29.8 percent in 2023-24.
But weighing only federal debt against gross domestic product to gauge Ottawa’s borrowing safe zone is problematic, because that debt is only part of the picture.
Add in outstanding provincial and territorial borrowing and Canada’s debt-to-GDP almost doubles to nearly 60 percent, or around $1.2 trillion.
As far back as in June, even the International Monetary Fund cautioned that jurisdictional borrowing in Canada needs to be addressed in its Economic Outlook.
“Provincial governments should do more to create more spending room…ensur(ing) that both levels of government have enough room to respond in case of a downturn,” reads IMF’s report.
“Reducing debt faster would provide more options to handle future challenges, such as those related to aging and weak productivity growth.”
Ian Lee, a business professor and faculty chair at Carleton’s Sprott School of Business, said in addition to sub-sovereign and provincial debt, Canadian household debt should also be cause for concern.
“We’ve got really overextended consumers, about two trillion dollars in debt,” he said. “We know exports are down, manufacturing has been in steady collapse since the 1970s, so what is the anchor or the driver that is going to drive us forward?”
Consumer debt in Canada topped $2.25 trillion at the end June, of which nearly $1.5 trillion is tied up in mortgages. Add this on top of federal and sub-sovereign Canadian debt and the country’s aggregate debt-to-GDP ratio sky-rockets to 281 percent.
“And housing and real estate is completely tapped out and they’re extremely over-indebted and so where’s the next big growth going to come from? I can’t see it,” added Lee.
While the Canadian economy recorded 400,000 net new jobs for 2019, November employment numbers from Statistics Canada indicated 71,000 people got pink slips a month before Christmas and that declines were experienced “in manufacturing and natural resources, as well as in the services-producing sector.”