Why Do Canadians Owe $51 Billion?

At $7,218, the average balance due to CRA at the end of June was unprecedented. Does this surprise you?  It’s the poll question we asked our Knowledge Bureau Report readers last month and, no surprise, 75% of our respondents said yes it did.  Since then, the number has risen even higher to $7,322 as of July 24.  The amount of money owed on 7,006,135 tax returns filed by Canadians is over $51 billion – exactly  $51,301,022,379. What’s changed?  It can depend on many factors. 

Self-employed taxpayers have to pay both portions of CPP – the employer and the employee’s share.  On the 2022 tax return, for example, those who net earnings from self-employment reached $64,900 would have to pay $6,999.60  plus the taxes they owed on that money.

There are more people retiring and tapping into their savings in Canada today.  The average age of retirement in Canada is 64.6 years and those over 65 are 7 million strong – about 19% of our population.  That’s up from about 17% in 2016 according to Statistics Canada.   These folks no longer have tax deducted from their paycheques every two weeks. While they can ask for withholdings from pension benefits,  many must make quarterly instalment remittances.  Sometimes they can get their remittances wrong, especially if there is a large capital gain, or more commonly, when more money had to be withdrawn from an RRSP or RRIF to pay for higher costs of inflation and fuel.

But here is what our tax and finance professionals saw in their practices:

From Gaetan Ladouceur.   “Yes…our hard-earned money is continuously being eroded by high inflation (mostly caused by the overspending of our current government during COVID) and the ‘insane’ interest rate hikes, that have proven to do very little to cool the housing market pricing hikes.  This government is bent on eliminating the middle-class.    A very sad outlook for our future. . .”

From Ann Laurin. “The shift with CAI from a direct refund position to being paid out quarterly allows CRA to collect their tax payables and with interest if not paid out by the 30th of April.  I am not surprised with the debt owing at the end of June! CERB accounts took many refunds this year and it will continue to do so as CRA digs deeper. Canada is not being managed properly and it is making Canadians very frustrated. It was the topic with every tax payer this year! Of all ages, of all household incomes it has had an impact on Canadians. What a shame!

Ann went on to explain some of the challenges her clients were facing on the ground everyday as lifecycle changes have been quite dramatic for many of them:   “The feedback from clients is: we just didn’t have the cash this past year to manage our tax payable with the high cost of fuel, groceries and now our higher mortgage payments each month. . . Many households that should be mortgage free and empty nesters are finding themselves still with a mortgage and having an adult child move back in with them and or the adult child has not left, with an average age of 30-40 years old!. . .Parents are caring for their parents or parents and at times moving them in with them based on the cost of senior homes. . . And let’s not forget about the housing market, sometimes this was a way to clean the slate, sell a home, downsize, buy sometime a little out of town, pay off debt! That ship has also sailed, guess what, you swim in debt now. . .because you sell for a million and you will buy for a million!! There is no more cushion.”

From Veronique Dewilde.  “This is outrageous! First of all, the mistake CRA made with (having recipients) paying back CERB, which increased for many their amount owing. Secondly, the insane high interests and penalties are just ruining them, and especially because CRA makes so many mistakes! Canadians were already scared of CRA, now they are just plain angry and no longer want to deal with them, hence they opt out by not paying, not filing, trying to cheat the system. CRA better gets its act together!”

Editorial comment. . .CRA usually wins when taxpayers owe as the collections department has the power to offset amounts owing with tax refunds and refundable tax credits. Plus, there are interest costs that make the problem bigger.  Better to arrange a differ way to finance CRA debt.

Bottom Line: For tax, accounting and financial advisors, it’s never been more important to Know Your Client better, and help with debt repayment to avoid 9% interest rates, compounding daily and potentially, and, in severe cases, the garnishees of up to 50% wages or tap into savings. 

Thanks for weighing into the Knowledge Bureau’s July poll.  For August, we ask this question:

The average retirement age of the self employed is 68.4 – 5.7 years after those in the public sector;  3.7 more than in private sector.   Is one co-hort better prepared for retirement than the others?