Tax filing time

One of my weekend projects was doing the family taxes. The good news: my effective income tax rate was 16.1%, which seems pretty reasonable to me. My boss, who makes more money, maxed out his RRSP contibutions and got his effective rate down to 14%. These numbers would creep up if we add in CPP and EI (although with CPP anyway this is money I am definitely going to get back in my old age) but my effective rate inclusive of payroll taxes is still less than 20%.

I also did a calculation about what my taxes would have been at the effective rate I paid averaged over 1998-2000, the years before big federal and provincial income tax cuts. Even though I earned substantially less money back then, at those rates, I would have paid an additional $3,600 in income tax in 2007.

As for process, I will repeat my gripe from last year. The federal government should allow everyone to file their taxes electronically, not just those who pony up for official tax preparation software. For most people like me who have rather simple returns, this would be much easier. As it is, I always discover something that requires me to go back and redo most of the calculations on the form. This wastes a lot of my time, and I’m good with numbers.

6 comments

  • I wonder to what extent your and your boss’s rather low effective tax rates are explained by the fact that both of you are raising children. Not that I am suggesting redoing your taxes without all child and childcare related deductions to find out, but it would be quite interesting to see exactly how much our current tax regime rewards parenting.

    As for filing taxes electronically, I myself find something strangely appealing in the whole thin-recycled-paper-and-pencil approach, but a quick look at the list of NETFILE “certified” tax preparation software on the CRA website reveals that two of the products, UDoTaxes and StudioTax 2007, are in fact offered free of charge. I’ve never tried them so I have no idea whether you will actually save much time given that you have a fairly simple return but at least you don’t have to spend any money to find out. Also, many of the other packages are offered for free to those with low net income and/or to students.

  • From a narrow tax perspective, I got a $300 net benefit from the child tax credit introduced in 2006 (thanks, Steve and Jim). My wife had childcare deductions that offset a decent portion of her income, and she also had to claim the $1,200 income for the Universal Child Care Benefit for tax purposes. Seth may have claimed these latter items in their household, and that could explain part of the difference in our own effective rates.

    Overall, the pure tax filing process is hardly advantageous for those with kids. Filing taxes, however, does trigger an income transfer in the form of the Child Tax Benefit paid out the following year.

    I checked out the CRA site for software, and for Mac there are only two options and both require payment. If it dramatically reduced my filing time, $40 for filing two returns (TaxTron) might be worth it. But the returns are pretty straightforward.

    I was mostly thinking of a web-based module that the government could get developed for rather little money and give away for free use to Canadians filing their taxes. Instead we have a model that tries to do industrial policy in software development on the backs of taxpayers. I would put having to pay postage to file the return under that category, too.

  • It would appear that more NETFILE certified software options are available for Windows, but I thought you could run Windows on the newer Macs. Besides, there are more than two choices for Mac if you consider all the web-based applications which run on both systems. None of them appear to be available for free, but you might find something cheaper than $40 for two returns.

    That being said, I agree that the government could easily get some software developed and provide it for free to individuals filing personal and perhaps small business tax returns. It must be way cheaper for them to process electronic returns than to have people go through and manually input all the information from the paper forms into their system. And it should be free to send mail to the CRA just as it is to write to MPs.

  • Marc,
    I agree with your broad point — there is no good reason why there isn’t a universally available web-based tax filing system actively promoted by CRA and the government.

    That said, I have to give a little plug for StudioTax, the CRA-certified FREE program mentioned by Iglika Ivanova. I’ve used it for the last three years and it hasn’t failed me yet.

    StudioTax is “marketed,” for wont of a better word, as shareware — you pay what you think it’s worth. I suppose that only underlies the broader point — if someone is willing to go through the trouble of coding this thing year-in, year-out, then there must be a very real and strong demand for free, or relatively free, tax applications. It also shows just how easy and cheap this kind of coding is — once the basic structure is in place, it doesn’t require an advanced programming degree to tweak it year-in, year-out to reflect tax changes. No one would be better placed to do that than CRA.

    Anyway, just wanted to give a plug for STudioTax. Best thing we have until we get a government with the guts to do the right thing.

    Cheers

    Arun

  • I believe they may have already have free e-filing software in the UK. They were late computerizing their Inland Revenue system, but perhaps got to leapfrog the US and Canada in some respects when they finally did it. I think they also still have vastly more taxpayers whose final tax liabilities are determined by source deductions, and thus don’t have to file any returns at all.

    But at more of a policy analysis level, the heavy time burden involved in tax filing is all too evident to those of us in the accounting profession who literally log thousands of hours at it, every year. All that time spent is counted in GDP as a social benefit, but it is really a deadweight cost of financing the supply of public goods. I am opposing my own short-run economic interests as an accountant in public practice, but wouldn’t it be better to be less reliant on income taxes ? One of the merits I see in taxing disposal of the end (i.e. waste) products of consumption, rather than income is that CRA could employ vastly fewer white collar workers, and vastly more, practical, blue collar workers, who could recognize an oversized “garbage footprint” when they saw one, as well if not much much better than the auditors and accountants now employed. Us bean counters would have to back to cost and management accounting, to earn an honest (and probably more socially productive) living.

  • Iglika Ivanova

    The StatsCan analytical report on the most recent Census income data, Earnings and Incomes of Canadians Over the Past Quarter Century, 2006 Census is roughly consistent with your experience.

    The proportion of the [economic family] income that is paid in taxes ranged from 2.8% in the bottom quintile, to 13.6% in the middle quintile and to 24.2% in the top quintile.

    I’m glad that they’ve started to track income taxes and after-tax incomes in the Census. This will give us a good reference point which will let us track distributional aspects of tax cuts (or increases) in the future.

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