Tax credits get even more complicated

More boutique tax credits mean more red tape, writes Mike Moffatt

Patrick Doyle/CP

Patrick Doyle/CP

Economic Action Plan 2014 (EAP 2014) continues on the government’s recent theme of reducing unnecessary or redundant regulations. The budget describes the government’s recent red-tape reduction efforts as “ambitious.” This is not an unreasonable claim to make, as the Conservatives have taken a number of positive steps to reduce regulatory red tape. Economic Action Plan 2014 contains a provision that will have the CRA automatically determine if an individual is eligible for the GST/HST credit, rather than having them separately file an application. The government has announced a plan to modernize the incredibly byzantine regulations for beer labelling, and it discusses a bill introduced by MP Dan Albas, which allows for the transport of wine between provinces. These are all fantastic initiatives that remove unnecessary regulatory burdens for Canadians and can only serve to enhance productivity.

The government’s record on reducing regulatory complexity and unnecessary duplication is far from perfect. The government likes to highlight its tax-cutting record. In the budget, it does this by highlighting how much a family of four has saved in tax from cumulative changes since 2006:

  • New tax credits: $1,470
  • GST relief: $1,071
  • Broad-based income tax relief: $856
  • TOTAL: $3,397

The magnitude of the GST changes, which have reduced federal revenues by $12 billion each year, have received a great deal of attention. I was surprised to see that cumulatively these tax credits have provided greater savings to this average Canadian family than the two-point cut to the GST. A few of these tax credits are broad-based in nature, such as the Tax-Free Savings Account. The vast majority are boutique in nature and are social programs in disguise, such as the Children’s Arts Tax Credit and the Children’s Fitness Tax Credit.

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The Budget takes pride in the number and scope of the tax credits introduced by the government since 2006. A number of case studies are given in the budget, such as Frank and Marilyn, who are raising a disabled child and are eligible for nine separate tax credits. A second case study describes a fellow named David in a four-year Heavy Duty Equipment Technician apprenticeship. He receives five separate tax credits:

  • Tuition Tax Credit
  • Education Tax Credit
  • Textbook Tax Credit
  • Canada Employment Credit
  • Tradeperson’s Tools Deduction

However, that is not a complete list. There are additional cash transfers associated with David’s training listed in EAP 2014:

  • Apprentice Incentive Grant
  • Apprenticeship Completion Grant
  • Canada Apprentice Loan, which provides interest-free loans to apprentices (introduced in EAP 2014)
  • Apprenticeship Job Creation Tax Credit (given to David’s workplace training employer)
  • Special provisions in the Employment Insurance program that gives apprentices like David access to enhanced EI benefits, not available to the general public.

Ten separate cash transfers, all of which are associated with a single apprenticeship program. This does not include tax credits that David may receive for other reasons, such as being a search and rescue volunteer in his free time (a new tax credit introduced in this budget).

Reducing red tape, reducing the complexity of the tax code and reducing compliance costs for individuals, companies and the government are all worthwhile goals. Unfortunately when it comes to tax credits, too often the government is moving in the opposite direction.




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Tax credits get even more complicated

  1. Make it too simple and we won’t need economists to explain it. Be thankful Moffatt. :)

    • Not to mention all the lawyers, accountants, and other tax specialists who would suddenly find themselves out of work…

      • The credits themselves don’t really require much in the way of tax specialists. Just a line item on Schedule 1 of the T1 return for the most part. It’s a stupid way of lowering taxes, and in fact has nothing to do with lowering taxes – it’s aimed at targeting certain voters. But that’s how they go about things.

        • I was thinking more broadly in terms of john’s “make it too simple” line – but I take your point.

        • Yep, tax person A more, B laughs, tax B more and A laughs. But governemtn runs away with more of the money and people don’t see it, they just see a trinket $75 dollar benefit for a $500 deduction. A good deal of obfuscation goes into income tax layout and design. And no mention in about about the $45 billion in hidden taxes we pay on the consumption side or its affects on inflated costs.

    • They can’t make it simple and honest or people people will see the truth.

      No mention of hidden taxes is a shining example. No talk of real inflation and how devaluation is impacting people. A par dollar was $40 billion of tariffs and dutes, now with devalued money it $45 billion — and 11% more GST as everything is going to cost 11% more with a 90 cent loonie.

      Don’t get me started on tax table slide and other slight of hand….for Ottawa its about tax greed.

  2. The difference in overall complexity either way from the “targeted” tax credits under this government could hardly be more minimal, especially when one takes into account the full scope of the income tax system. Morevoer, restrictions and “red tape” are generally put in place so that they are targeted towards the purpose specified (willing to accept authoritative correction regarding specific examples used in the above article itself).

    This isn’t really a thing. Sure a targeted tax credit may not be working or might be better spent another way, for instance, the public transit tax credit might better be spent on transit infrastructure. But “omg the tax code will become more complex” is really a non-starter.

    • Agreed. Obviously a simpler tax code would be better, but having to fill out an extra line on your tax return to get a couple hundred bucks hardly seems all that onerous.

      • I think you need more than one of the offered credits to be able to claim a couple of hundred dollars. Most would cap out below that.

        • You get my point. Or is it really just that hard for you to agree with me about anything?

          • it certainly gives me pause :)

        • Yep. Credits are deceptive too as most of them cap out to a 15% maximum value even though your last dollar earned might be 32 to 44% tax. It inflates the real value of the credit.

          For example: $7697 disability credit amounts to a maximum credit of $1154.55 of credit on taxes. Yet the last $7697 you make is probably s lot higher than 15, maybe even 43% so in fact you still pay 28% of $7697 in taxes. Its designed to deliberately deceive people in thinking they are getting more benefits than they are.

          Lines 300 to 349 operate this way, which is most credits other than RRSP that most people would apply.

          So when government says a $500 credit, the maximum benefit is likely $75 and NOT the implied $500.

    • Or lower taxes so we have more money to spend on each others jobs.

      Now thats a job program that would really work.

  3. Okay, I’m a little concerned that you choose to label tax credits as social programs. I think attempting to change the meaning of the language like that is underhanded, to say the least.

    Social programs help people in need. Tax credits, especially those that have been designed by this CPC government almost never do that, because in order to qualify for the tax credit, you have to demonstrate that you didn’t actually need the assistance to do whatever it was you’re getting the money back for.

    The child fitness tax credit, for instance, requires you be able to get your child into an approved fitness program on your own, before you can ever claim the credit. Similarly for the tuition and textbook credits. By the time you can get them, you need to have been able to afford the tuition and the credits in the first place.

    So kindly don’t call these social programs. They’re not. And by doing so, you’re either exposing your ignorance of what a social program is, or deliberately trying to change the meaning of “social program” to “any use of government revenue”, which is not what they are.

    • By “social programs in disguise”, he means they are not about lowering taxes, but about some stated social objective like getting more kids into sports. Of course, their real purpose is neither of those things. It’s all about targeting certain voters.

      • Actually the purpose of giving middle class voters these boutique tax cuts is electioneering. The Cons target votes instead of economic performance.

        According to the Con 2009 budget, they have cut taxes by $44.4B/yr. But Canadians would’ve been much better off if these were income tax cuts instead of the ineffective nonsense they put in place.

        The Liberals would be smart to promise to streamline the tax code and with the savings cut personal income taxes and increase social spending to effectively address issues like increasing participation of youth in sports, arts, etc.

    • Where does one find your definition of social program? This is not intended to be read as a sarcastic question as I’m generally curious.

      If I read your comment correctly you are objecting to the use of the term to describe some (or possibly all) of these tax credits as they are only likely to benefit the middle class (or at least not those in genuine need). That seems like a reasonable objection.

      • You’re right, I am pulling the definition of “social program” more from the common cultural context than any specific definition, but that’s because the term isn’t really defined in an absolute way anywhere.

        Still, I believe I’m correct in my belief that most people feel a key aspect of a social program is that it helps a person accomplish something specific to that program. Health care is a social program. It helps us to receive health care. Social assistance is a social program. It assists us in attaining a minimum standard of living. Student loans may be looked on as a social program, and student grants are certainly a social program, as they help people attain an education. The tution tax credit, however, does not provide any aid in attaining something, it only rewards after that attainment has been accomplished. I don’t think it meets the common cultural understanding of what a social program is.

        And that’s why I particularly object to Mike’s use of the term. Because the term doesn’t have a firm definition, it is vulnerable to people who want to change its meaning, but when you change the meaning of the words, you change the debate around them.

    • Why not just lower taxes for everyone and avoid the none value added complexity?

      Oh wait, this is like governemtn managing us like hen chickens. Trying to garner support from everyone with trinket sized deductions in a light of hand move.

      Lets look at the Child Fitness amount, its a maximum of $500 but translates to 15% real credit, a maximum of just $75. Yep, they conned you into more acceptance of high taxes for just $75 or less. They inflate the benefit by calling it $500, but to the bottom line you will only see a max of $75.

      In UFile or tax program, apply $500 to line 365 and note the change sin taxes owed/refund. You will see $75 or less as the difference, not the implied $500.

  4. I will believe it when I see it. This governemt can be decepitve, for example when GST was lowered many tariffs were raised for a net tax gain to the government. Note double taxing Trust lies too.

    Say they offer you a $500 off, it usually translates to a maximum of 15% credit, so its a max of $75 difference to the bottom line. If you are last dollar taxed at 42%, you get 15% off but still pay the other 27%.

    Often these credits never fully benefit anyone, and never benefit everyone. And governments skirts the issues of hidden taxes and price protectionism driving up consumer costs by 45 billion in tariffs/duties/excise, more in protectionism with GST extra.

    And no mention of tax table slide. Tax table slide is where REAL inflation is higher than the tax deductions growth. No one believe inflation numbers from StatsCan as real inflation is much higher. But very few tax deductions grow at the rate of even StatsCan bogus inflation number of 1.2%. Real inflation is say 5%, income goes up 4%, but tax tables are 1% or less. Means more income is taxed at a higher rate for a sly but real tax increase.

    Add in disabled, retired got less than StatsCan raises.

    Its all smoke an mirrors to decieve people out of their money for bailouts, corruption and waste.

  5. Line 435 has what government costs you, CPP and EI extra as its hidden from this number. Also not included is property, utility taxes, GST/HST and a huge hidden $45 billion in tariffs, duties and taxes you don’t see with CBSA but are in foods like eat and cheese, clothes and a long list of things you buy every day.

    Add in protectionism costs too. If Mozarella cheese is tariffed at 283% then if the Mizarella you buy is domestic, sure, no tariffs but you get inflated prices and some rich “family” pays more taxes on windfall profits. And tax your dentist more, they just toss the bill to us in inflated costs.

    Its really about governemtn greed. Amazing how many people earn $100, pay $40 in income.employment taxes, $10 in property/utility taxes, $23 in carbon taxes for $27 to of gasoline to get tot work to pay more taxes.

    Yep, you earned $100, but only got $27 of product to go to work to pay more taxes. Government benefits more than you do when you factor in income, life and spend side taxes. Yet most of us don’t really know how Ottawa or provinces spend all that money….we are well conditioned never to question government….and taxation as modern day slavery for bailouts, inflated buddy contracts, waste, union and other government wastes.

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