Tax hell - special tax edition
Taxes, now taxes, future taxes, tax deadlines, carbon taxes, robo-taxes, tax data, tax hot takes, tax chat, tax theory, taxes.
Hi there!
The big news this week is…the tax deadline did not get pushed back.
Did we really think it would? 20,000 people did make an effort to appeal to the CRAs empathetic side…but no dice. So if you spent your weekend trying to file your return online or by phone and you faced endless outages and wait times…we feel for you.
Part of this feels like it was to prove a point - that the tax system, waterfall as it is, is stuck in the past. That these ‘crisis dates’ in the diary cause unnecessary burden on both business owner, tax professional and government. They also cause hardship - 12% of Canadians fail to file a return each year, the majority of which are low income. And given that benefits, rebates and grants are based on that tax return, that’s a lot of people not getting the support they need, primarily because the tax system is just too damn complicated. No wonder that so many of us pay professionals to do it for us, and no wonder that the industry around tax filing sees $1.4B revenue annually.
With the rise of cloud accounting, online payments, online payroll, online banking, and - dare we say it - AI, it feels like the tax system, with it’s archaic quarterly or annual filings, hilariously poor ‘CRA inbox’, forms and calculations, My Account / My Business lack of inter-communication, etc (we could go on indefinitely) seems not fit for purpose - or at least not fit for the future. So it comes as little surprise that Ottawa is rolling out and expanding trials to automate tax filing. The focus of this effort is, as you’d expect, low income earners - trying to get that 12% to file and get their rebates. But with the vast majority of self employed people - and Small Businesses - having pretty simple annual returns, it doesn’t feel like we’re predicting the robot future when we suggest that pretty soon you’ll be able to elect to auto-file your taxes on demand, and simply add in your expenses. As tax becomes more deeply connected to our accounts, our payrolls and our payments, there is a possibility for tax to become as ambient as that GST/HST you pay at the till - and think little about.
What’s blocking this shining tax future? Accountants. Trust in government. And the expectation that the CRA, given half a chance, will rinse you of your hard earned.
So…there are some mountains to climb if Ottawa wants to navigate a path towards integrated, automated, ‘smart’ taxation. And while there is something to be said for the trials underway, positioning automated tax processes as a means of benefit distribution is, right now…a simple feel good story.
What Ottawa will need to do is convince a legion of Small Business owners that they’re on their side - and not constantly out to get them. Oh, and remove the knee-jerk, abject, blood-pressure rising, blind terror that comes from seeing a ‘Revenue Canada’ email appear in your inbox.
BTW - did you know you can reply to this email? We always read the responses and welcome feedback. Let us know what you like, what you don’t and what you’d like to see more of in the future!
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Top story this week☝️
Canada still growing, but only just.
In non-Tax news, the Canadian economy grew 0.1% in February, down from 0.6% - which is lower than expected. Why? A tough few months for wholesale and retail, mining and quarrying. On the positive side, there are signs of strong growth in the public, professional, scientific, technical services, construction, finance and insurance sectors. What does this all mean? Slowing growth without easing inflation means, most likely, static interest rates - which suggests the Bank of Canada are unlikely to consider a rate reduction any time soon. Link
News 🗞️
Public Service strike confusing tax accountants
No extension, but chaos abounds. With no extension to the tax deadline, and 35,000 CRA employees still on strike - many Business owners and Accountants are struggling to get the information they need from the CRA to complete returns. As of today, Service Canada, along with several other government offices, are back at work after successful negotiations. But the CRA staff are still holding out and trying to put together a suitable deal - leaving those desperately trying to submit today wondering what’s going to happen. And, yes, that’s not considering the inevitable backlog that the returning CRA staff will have to process. Link
New Brunswick joins the rest of the maritimes in carbon taxes
Starting July 1st, New Brunswick-ers (Brunnies? Wickers?) will start to pay the new Federal Carbon Tax, which the government is at pains to point out will be more about rebates than payments - around 90% of Carbon Tax revenue is slated to be returned to residents come tax time. This means, according to Federal estimates, a family of four would see $736 in rebates per year. The Federal Carbon Tax is designed to incentivize people, businesses - and, ahem, utility companies - to pollute less and adopt greener, more sustainable processes and energy. This is a long-lead tax programme that’s betting on the post-carbon economy, and it’s short-term success is going to be completely tied to how it’s perceived by everyday families who are already combating inflation. Rebates will, no doubt, help. Link
And finally…
JPMorgan Chase buys First Republic. Link
Mind the GAP. Link
Bluesky is eating Twitter’s lunch. Link
The Data Room 🤖
Continuing our ‘tax special’ this week, The Data Room digs into some of the facts around tax returns! What a week to be alive!
Robo-taxes
Ottawa is suggesting that the tax of the future might be automated. Nice! Let’s all look at the numbers!
Now that we’ve just passed the tax submission deadline, there are inevitable calls to rethink the entire system. A couple dozen countries around the world have eliminated the need for personal tax filing, opting to automate the process for the majority of their citizens (hello New Zealand!). Canada could soon be on this list, and, as we’ve noted - we’re already seeing the launch of pilot programs focused on lower-income Canadians who will have their taxes automatically filed.
The slow roll towards efficient tax filing systems has seen the shift away from paper filings, with 94% of returns coming through electronically in 2023. That means that somewhere out there 6% of us are still scribbling everything out on paper and mailing it in. Moreover, 82% of Canadians receive their refunds by direct deposit, while 12% get a cheque instead. These numbers show that Canadians aren’t averse to a little bit of ease-of-use, so what’s stopping us from going one step further? More than 31 million returns were processed in 2022, meaning that switching to an automated system could free up millions of hours of time spent stressing out about numbers the government (mostly) already has.
As legal income is tracked, it’s kind of trivial for the CRA to just send you a document saying “we’re pretty sure this is what you owe us” and then move along with a few boilerplate questions. In this bold utopia, Canadians sail through April and perhaps see an email with a request for money (the average being $4,611), or a note saying that money from a return was deposited into their account ($2,072 on average).
Longtime Data Room readers will notice that this system won’t be perfect - there’s still the $68.5 billion, or 2.7% of total Canadian GDP worth of underground economic activity that won’t show up on the radar. As we’ve written about previously, this illegal income isn’t usually reported as it is, so it’s not likely that automated tax returns would make much of a difference in this regard. On the whole though, automated tax returns seem like an easy way to grab a few more returns from the 12% of Canadians who already don’t file their taxes. And maybe reduce the fear of tax-season.
Market at-a-glance 📈
BOC Indicators (Link):
BOC Prime Rate: 6.70%
BOC Unemployment Rate: 5.0%
BOC CPI Inflation Rate: 5.2%
BOC $USD Exchange Rate (Link):
Low: 1.3546 CAD [0.7382 USD]
Average: 1.3597 CAD [0.7355 USD]
High: 1.3625 CAD [0.7339 USD]
Best GIC Rates (Link):
1-year GIC: 5.15%
3-year GIC: 4.85%
5-year GIC: 4.70%
Best 5Y Mortgage Rates (Link):
Variable: 5.40%
Fixed: 4.29%
Prime Rates (Link):
TD Bank: 6.70%
BMO: 6.70%
RBC: 6.70%
Scotiabank: 6.70%
CIBC: 6.70%
National Bank: 6.70%
CRA Canadian Pension Plan Rate: 5.95%
CRA Employment Insurance Rate: 1.63%
CRA Minimum Wage per Province: Link