One Comment About Taxation – Canada Revenue Agency Needs to Introduce Automatic Filing and Regulate the Tax Preparation Industry

 

The tax preparation industry in Canada, like many countries, is a big business.  By some estimates, it brings in well over $20 billion in revenue annually.  While all of that is not to prepare personal income tax returns, it would certainly be a significant chunk of that estimate.  How much of that revenue is generated from Canadians who have straight-forward income and not that much complexity?  Not sure but ultimately it would be preferable for such straight forward situations to not pay much if anything to annually prepare their returns.  The vast majority of Canadians have straight-forward income tax situations.

For example, if a person has a T4 slip for employment income, perhaps a little investment income reported on T5 slips and maybe a contribution receipt for an RRSP contribution, does it make sense for such a person to pay $150 or more to prepare their tax return (yes, I know there are some preparers who will do it for less)?  In my opinion, no.  Such people can ultimately do it on their own but preparing a tax return can be intimidating.  And purchasing the software to assist can also be relatively expensive compared to the complexity.

Some countries, like the U.K. and New Zealand, have had automatic tax filing systems in place for years.  In the U.K., for example, many wage earners are not required to file a tax return because the proper amounts of tax are withheld.  However, if a U.K. person doesn’t meet the requirements, then they are required to file a return.   New Zealand’s system is similar.

Canada has had a rudimentary self-filing system for years.  The CRA’s “Auto-Fill” program can be helpful to see the income that the CRA has a record of already.  Canada also has a SimpleFile by Phone automated phone service that also is available for lower income and non-complex Canadians who can file their returns by telephone using the phone’s keypad to answer some basic questions.

Given the fact that our country’s system of many tax credits and entitlements are income sensitive and require a tax filing to substantiate income, it is usually important for all Canadians to file tax returns.  However, for many, it is not easy and more often simply intimidating. Not good.

In the 2023 Federal Budget, the government announced that it “…will pilot a new automatic filing service that will help vulnerable Canadians who currently do not file their taxes receive the benefits to which they are entitled. Following consultations with stakeholders and community organizations, the CRA will present a plan in 2024 to expand this service even further.”

No further details were presented in that budget and if there has been further consultation and / or updates then it is news to me.  Notwithstanding, I think it’s fair to say that most of the Canadian tax community would encourage the Canadian government to get this initiative across the goal line.  In my view, it’s a shame that many lower income Canadians are simply not filing their returns or have to pay tax preparers expensive fees to get their returns done.  The government has all of the information and can simply follow the lead of other countries like the U.K.

While strong and forward-thinking technology has long not been a strong-suit of the Canadian government, it’s well past time for automatic tax filing to occur.  Accordingly, I’ll be eagerly awaiting an update and details in the upcoming – yet to be announced – 2024 Federal Budget.

Speaking of tax preparers, Canada has an unregulated system.  In other words, anyone can open up such a business whether they have tax expertise or not.  And believe me, there are many such shops in existence.  Tax is complex and intimidating. So, to have an unregulated system has always surprised me.  For example, medicine is regulated.  Law is too.  Engineering. And many other complex areas. So why not tax so as to protect the public and to ensure the CRA is receiving better prepared returns?

In 2014, the government released a consultation paper: Proposal – Registration of Tax Preparers Program (“RTPP”). The paper laid out some basic thoughts on what a registration program could look like and briefly compared the systems in the U.S., U.K and Australia.  Some thought the paper was quite controversial, but I always generally supported the program since good tax compliance should be accompanied by good education and minimum standards by those that charge a fee to the public.  Ultimately, in 2017, the CRA announced that it was abandoning the program largely, it appears, because of cost concerns to implement the proposal.

In my view, in light of the pending automatic tax filing initiatives discussed above, it would also be a good time to revisit the RTPP proposal.  While the two initiatives are obviously distinct, there are also some overlaps in that people who prepare tax returns – for lower income Canadians in particular – should meet basic and approved minimum education standards.  Most Canadians are not in a position to judge such preparers’ expertise and until a seamless automatic tax filing system is in place for the vast majority, then Canadians should be able to assess their preparers’ experience.  And the government should be able to pull their “license” if it is found that the preparer’s “error rate” is beyond an acceptable standard.

In my view, automatic filing and minimum registration requirements for preparers are long overdue.  I look forward to progress in this area for the benefit of Canada as a whole.

 

One Comment About Leadership – Why are Leaders Important?

 

One of the classic leadership books is The Leadership Engine by Noel M. Tichy first published in 1997.  The book is filled with excellent material on leadership principles.  Chapter 2 of the book discusses “Why Leaders are Important” and Chapter 3 discusses “Leadership and the Teachable Point of View”.

From the executive summary of Chapter 2 on why leaders are important:

• Leaders Manage Through Times of Change
  • They determine direction
  • They move organizations where they are to where they need to be

• Leaders Make Things Happen
  • They shape culture
  • They use management tools 

• Leaders Are Revolutionaries
  • They face reality and mobilize appropriate responses
  • They encourage others to do the same

From the executive summary of Chapter 3 on leadership and the teachable point of view:

• Great Leaders are Great Teachers
  • They accomplish their goals through the people they teach
  • They teach others to be leaders, not followers

• Winning Leaders Make Teaching a Personal Priority
  • They consider teaching one of their primary roles
  • They use every opportunity to learn and teach

• Winners Have a “Teachable Point of View”
  • They have clear ideas and values, based upon knowledge and experience
  • They articulate those lessons to others

Even if you don’t read the book, the executive summaries of those two chapters has a lot in it to absorb.  Let’s just say that I agree with 100% of the above.

My experience with the Chapter 2 issues is that it is very hard to do all of those important things and often you will be criticized by others who don’t agree or think they can do a better job. Notwithstanding, it’s important to continue on and move forward while accepting good feedback.

My experience with the Chapter 3 issues is that teaching and learning is critically important. It needs to be deliberate.

Leaders, do yourself a favor and read Noel Tichy’s excellent book.  But if you don’t, absorb the above, consider the importance of your role, the need to learn and be deliberate about teaching.

 

One Comment About Economics and Politics: Canada’s Declining Gross Domestic Product (“GDP”)

  

I think it’s fair to say that most Canadians do not know what “GDP” means when they read or hear about it and their eyes roll or they simply gloss over the information.  So, what is GDP? Well, the font of all wisdom (yeah, right..)  – Wikipedia – defines it as follows:

GDP is a monetary measure of the market value of all the final goods and services produced in a specific time period by a country or countries. GDP is most often used by the government of a single country to measure its economic health.

Various organizations, like the OECD, modify the definition of GDP slightly but ultimately the above is not a bad definition to generally understand its importance.  Overly simplified, the higher a country’s GDP the better off its residents are from an economic point of view.

For Canada, it’s been well known for a long time that our overall GDP has been lagging.  In a well-written but eye-opening article in the Financial Post from last week, eminent economist Jack Mintz wrote the following:

As many economists have pointed out, including yours truly, real GDP per capita has stalled since 2018 and in 2023 it actually fell — by 2.4 per cent — and is likely to fall again in 2024. Our stalled and now declining productivity is fast becoming a crisis. Canadian incomes are falling behind those in other countries, especially the United States, our most important competitor for investment, entrepreneurs and skilled workers. We are setting ourselves up for a brain drain as people and businesses seek better opportunities elsewhere.

I totally agree that this is becoming a crisis.  Regarding Jack’s comment about a “brain drain”, it is already happening in real time as I have pointed out for a long time.  Our country’s high personal tax rates are contributing significantly to this issue.

Is there a silver bullet or “magic solution” to this issue?  Here’s what Jack Mintz says in his article:

If economists have failed, it is that we really don’t know just how much the different factors are contributing to the falling Solow residual in Canada. In all likelihood, there is no single silver bullet. What we do know is that falling per capita GDP will not be good for Canadian society.

Totally agree…there is likely no “silver bullet” to solve this issue.  Having said that, I think it’s long overdue for some eminent Canadians from a variety of different sectors (labor experts, taxation experts, economists, public policy experts and others) to get together to tackle this issue together for the benefit of Canada as a whole.  Of course, that would require some political goodwill of our government to invite non-partisan and potentially non-supporting members to the table to listen.  And more importantly, have some courage and do what’s right for ALL Canadians….not just for the benefit of their own political skins.

Yep, I’m likely dreaming.  But it’s a good dream.  And that dream should come to reality.

 

Bonus Comment – Quote From John C. Maxwell About Leaders Being Good Teachers

 

“How to prepare someone for leadership: I do it. I do it and you watch. You do it and I watch. You do it. You do it and someone else watches.”

 

Yep.  Brilliant!  Leaders, are you deliberately teaching?  And learning?

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