Preparing, filing and submitting our tax returns plus maintaining a
government bureaucracy to manage and regulate our tax system cost
Canadians between C$19 billion and C$31 billion in 2005, says a new
study from The Fraser Institute, an independent research organization.

"When you add up all the costs - the time and effort spent obtaining
or providing receipts and other documents, preparing and submitting
the actual tax return, plus the cost of a government bureaucracy to
manage the system - they worked out to between C$19 and C$31 billion
in 2005. That translates to a cost of C$585 to C$955 for every man,
woman and child in the country," said Jason Clemens, Director of
Fiscal Studies at The Fraser Institute and co-author of the study.

The new study, Compliance and Administrative Costs of Taxation in
Canada, uses existing data to estimate the total cost to the Canadian
public in 2005 of complying with tax laws and regulations and the
costs to governments in managing and maintaining the tax system. The
study examines two types of costs associated with taxation -
compliance costs and administrative costs.

Compliance costs are expenses incurred by individuals, families, and
businesses to comply with tax regulations. These include the time and
expenses to maintain proper records, undertake tax planning, file
necessary reports, and calculate required remittances. They include
both the costs incurred by individuals and businesses as well as fees
paid to tax professionals such as accountants and lawyers. Costs
incurred by businesses include collecting, managing, and remitting
taxes paid by employees to the government, the costs of paying the
businesses own taxes, and in providing tax-related information to
governments.

Administrative costs are incurred by governments to collect taxes and
enforce tax regulations. These costs include collecting,
administering, and managing the tax collection system. They include
the direct costs of the Canada Revenue Agency, which is responsible
for administering and managing the Canadian tax system, and related
overhead. They also include indirect costs incurred by judicial bodies
responsible for settling disputes between taxpayers and the
government.

"The myriad complexities and regulations of Canada's tax system are
increasing the costs of paying our taxes. We're essentially being
forced to pay more money in order to give our money to governments,"
Clemens said.

Clemens pointed to the recently created fitness tax credit as an
example of a regulation adding unforeseen additional costs to the tax
system.

"People may like the idea of receiving a tax break for putting their
kids in sports," he said. "But to get that tax break, parents have to
make sure they obtain receipts for all their kids' sports. Volunteers
from athletic associations have to be sure they issue the receipts.
Organizations have to make sure they are eligible under CRA guidelines
to provide receipts. When you add up all the time and costs, it adds
up to millions of dollars. And it appears to be getting worse."

Compliance and Administrative Costs of Taxation in Canada calculates
all the costs within Canada's tax system and puts a dollar figure to
them. The study calculates that the total compliance costs of personal
income taxes alone ranged from C$2.9 billion to C$3.9 billion. That's
the cost of the time required to prepare, complete, and remit the tax
return, the costs associated with tax preparers, and the costs of tax
preparation software.

Total business tax compliance costs, including direct and indirect
costs as well as overhead, were calculated at C$13 billion. Compliance
costs for both personal and business property were also calculated,
coming in at C$224 million to C$448 million.

Administrative cost estimates were collected from a variety of sources
involved in tax collection in Canada, including the federal,
provincial, and local governments. The total calculation for
administrative costs for taxation in Canada was between $2.7 billion
and $5.8 billion.

When it's all added up, the total cost for complying with and
administering Canada's tax system ranged between C$18.9 billion and C
$30.8 billion in 2005. This represents between 3.5 and 5.8% of total
federal, provincial and local revenues and between 1.4 and 2.3% of GDP
in that year.

"The goal of tax policy should be to raise sufficient funds for the
government to provide services demanded by citizens in the least
costly manner possible," Clemens concluded.

"Given the high cost of operating and maintaining Canada's tax system
and the burden it places on the average taxpayer, governments need to
look at measures to reduce these costs. The most obvious and most
important measures are ones that reduce or eliminate tax policies that
add complexity to the tax system, such as special preferences,
multiple tax rates, and the number of taxes collected."

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