Thursday, January 10, 2008

PMS: Making tax returns even more complicated

I had a chance to take a look at the 2007 tax package we Canadians will be filling out in the next few weeks -- posted online right now but yet to be mailed out or disseminated in software packages. What I can't figure out is exactly what PMS is trying to do to us. Rather than make life simpler with a flat tax or few rates, he's actually thrown multiple "tax credits" into the mix.

He's retroactively raised the personal exemption and lowered the base tax rate after he started his term by doing vice versa to both.

He threw in a deduction for kids -- kind of nice, $2000 each, except at 15% that only works out a $300 reduction ($250.50 in Québec), and one that isn't even refunded if the kids' parents' net taxes are zero. (Wouldn't it have been better just to increase the refundable Child Tax Credit by $300?)

My favourite, though, has to be the Working Income Tax Benefit. It sounded like a nice idea in principle. But it's complicated to calculate, and at least for the first year the thresholds to qualify are very low both for singles and people with children. Second, there's an application process to get 50% of the credit in advance for this coming year -- presumably added on to the GST cheques we get every quarter -- but we actually have to apply for this and mail it in every year. This is totally unlike the CCTB and the seniors' GIS which is renewed automatically for 99% of recipients who just mail in their tax returns or remember to.

Issue: How many people are going to miss these items and pay more than the law requires? Worse, for a government that promised to make life easier, why make it even more complicated?

It would have been easier just to raise the exemption or, again, add in money to already existing entitlements flowing through to individuals.

Remember, these ideas came from what were once the flat tax Reform Party. (Truth be told, I support the idea of a flat tax in the long term, provided exemptions were set high enough to ensure lower to middle income families paid little or no tax -- but that will be discussed in a future blog post, both how it could work and why the present flat tax ideas as currently constituted make no sense.)

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