Evelyn Jacks: What It Costs Canadians to Comply with Their Personal Income Taxes

The Fraser Institute published an interesting paper by Francois Vaillancourt in April 2010 on what it costs Canadians to comply with their personal income taxes. Leger Marketing did a detailed survey for the national think tank on a sampling of 2000 tax filers based on the 2007 tax filing year. The key results: the use of a tax pro has increased significantly over the past 20 years. 39% of Canadians paid a pro in 1986; 51% of Canadians paid in 2007.

In the meantime, 31% still do it themselves and 18% rely on friends, family, or a non-profit organization. Of those who filed on their own, 53% used software, a number that is increasing. The software users were younger –  ages 25 to 34; those who used paper were older – 55 and older. Also, men were more likely than women to do their own returns, and richer people and those with more complex sources of income such as rental or self-employment tended to use a professional. Makes sense.

Here’s what’s even more fascinating: Canadians spend an average of 5 hours gathering receipts and forms, preparing meeting with paid preparers and/or completing their tax returns. When time spent on tax planning and audit-defence is included, Canadians spend about 7 hours complying with CRA. The average Canadian spent an average of $61 on payments to tax preparers and purchasing software.

All in, based on the value of time and cost of resources required in filing personal income tax returns, the Fraser Institute calculated it costs approximately $215 to comply with CRA’s requirements. Those costs are higher for the self-employed or those receiving rental income, capital gains, or foreign investment income (approximately $300). Adding on 2% per year for inflation, that means about $235-$330 in today’s dollars.

Finally, it’s worth noting that married couples have higher compliance costs than singles, for obvious reasons, but families making use of special tax credits like the children’s Fitness Tax Credit, Public Transit Tax Credit, Education Tax Credits, and so on, also pay more.   

Total compliance costs? It ranges from $4 billion to $5.8 billion according to the report. That’s a significant industry in Canada.

It’s Your Money. Your Life.  The more organized you are all year long, the less time and money it costs preparing your return – whether you use a pro or not. Make a tax filing resolution for 2013 – get your January to April receipts and documents in order now and stick to it! It will pay off.

Evelyn Jacks is President of Knowledge Bureau and author of 50 books on tax and personal wealth management. She is also the founder and director of the Distinguished Advisor Conference (DAC). The theme of this year’s three day think tank in Ojai, CA Nov 10-13 will be “Back to the Future – Collaborative Wealth Management.”  Follow Evelyn on Twitter at @EvelynJacks.