GROWING

COMPLEXITIES
HOW CANADA’S TAX PLANS
HAVE CHANGED OVER
THE DECADES
Albert Einstein, universally viewed
as one of the smartest people to
ever live, once said, “The hardest
thing in the world to understand is
the income tax.”
Few could argue this point.

Income tax in Canada is fairly new in the grand scheme

of things, having been first introduced in 1917. Ever since then,
especially in the past 40 years or so, not a tax season goes by
in which the filing process doesn’t cause endless levels of
frustration, complications and annoyances for filers. A tax
return used to be very straightforward – nothing more than
a four–page packet, where all you had to do was list what your
gross earnings were in the previous year so that your tax rate
could be applied, depending on what bracket you fell in as
determined by your income.
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Though the income tax was initially going to be a temporary
measure, it became federal law 30 years after its introduction
when the Income Tax Act was passed.

What was once a fairly simple system became more complex,

as additional tax brackets made the filing process lengthier.
Tax experts point out that the Income Tax Act was 20 pages
in length from its previous 10 in 1917. There were 10 different
tax brackets, with nearly 20% of the population making
enough money to be taxed.

Since then, major tax reforms have

taken place no less than five times
between 1962 and 2000.

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A once 20-page Act has morphed
into a 2,900-page monstrosity
Though some of these changes have enabled small business
owners to pay less in income taxes, they haven’t changed the
fact that the rules and regulations are so enormous that a
once 20-page Act has morphed into a 2,900-page
monstrosity.

No less forgiving is the degree to which the Canada Revenue

Agency (CRA) enforces tax law. Over the past 40 years, audit
actions have risen, aimed at both consumers and business
owners who fail to comply. In fact, the internet has enabled
the CRA to easily perform search inquiries on businesses that
may have made an innocent mistake in the filing process by
missing a step, miscalculating what income was earned or
accidentally applying tax write-offs that can’t be. For
example, claiming a home office as an in-residence expense is
a very common error.

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Over the years, the CRA has been carefully focused on
collecting from businesses that have failed to report earned
income. Their increased vigilance has resulted in millions of
dollars in tax revenue.

The CRA is also becoming more aggressive with late filing

penalties. There really is no such thing as a grace period for
the government. Your taxes have to be filed on time, and if
you owe money, but file late, the government won’t be
merciful on you. In other words, expect a big penalty.

Should you miss the deadline, the late-filing penalty is 5%,

and doubles to 10% on a second offense. This is on top of the
balance you owe, plus an additional 1% for every month that
your return is late up to 12 months. For a second offense,
you’ll owe an additional 2% for every month your return is late
up to 20 months.

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Complicated and unforgiving though the CRA may be at
times, that’s not to suggest that there haven’t been some
welcome improvements to the tax act.

For example, the corporate base rate now stands at 38%, the
small business deduction rate is at 10% and rates for an M&P
corporation are at 15%.

In 2009, the government introduced the tax-free savings

account. With it, Canadians can earn tax-free investment
income throughout their lives – starting when they turn 18 –
to devote to various living expenses like those in retirement.
For the 2018 tax year, the TFSA contribution limit was
increased from $5,000.00 to $6,000.00

Another beneficial reform is the apprenticeship job creation

tax credit. The AJCTC is a non-refundable tax credit that’s
equal to 10% of what apprentices earn in income. Businesses
qualify if they have an apprentice who has been working in a
prescribed trade within the first two years of their contract.

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The CRA has no sympathy for
getting things wrong or making
innocent mistakes

But even here, a legitimately worthwhile tax credit, the claim

process isn’t exactly a piece of cake. Should you misinterpret
the application process or eligibility requirements, use the
wrong form or make a technical error, your application could
be rendered null and void.

When it comes down to it, the CRA has no sympathy for

getting things wrong or making innocent mistakes. Just one
omission or miscalculation results in being assessed, audited
and subjected to burdensome penalties with interest –
meaning that your debt will get that much more costly the
longer it goes unpaid.

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FBC Membership
Tax Preparation  
We’ll come to you to complete your tax return at a time
convenient for you  

Tax Planning 
All Members have a personalized tax plan to maximize tax
savings today and over the long run 

Tax Consultation  
We understand that questions may arise at any point in
the year, not just at tax time. Unlike other firms, FBC
Membership includes year-round access to our team of
experts at no extra cost 

Audit Representation  
We provide audit representation on any challenges to
your returns for income tax or GST/HST

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Contact FBC to get started and
experience the FBC difference
for yourself.

FBC delivers more value to farm owners, agricultural

producers, self-employed contractors and small businesses
than the traditional accounting approach through our
industry leading, year-round membership model.

1.800.265.1002
fbc@fbc.ca
www.fbc.ca
Book a consultation online:
www.fbc.ca/consultation