Comment on Tax Freedom Day

July 4, 2005


Reader Dave left the following comment about the recent post on Tax Freedom Day:

Instead of a tax freedom day, think about a govermental [sic] services free day. It wouldn’t be much different for a lot of people. The banks would be closed. The markets would be closed. The police and fire operations wouldn’t show up unless they were manned with volunteers.
Why is it in our discussions about taxes, people pay no attention to what they get for their tax dollars?

It would be counter-productive to argue that we should pay no taxes. Most of us fully realise that our tax dollars help pay for our police, our military, our schools, our first-class universities, our hospitals, our highways and countless other services that only the government can provide in an equitable manner. Our tax dollars also help our less-fortunate citizens and even the poor and distressed in foreign countries.

We should also realise that governments tend to be wasteful more often than not (Remember the HRDC boondoggle, the gun registry and the current sponsorship scandal?) and efficient government is an oxymoron. All I am saying is people should estimate their total tax burden and judge for themselves if they are receiving good value for their tax dollars.

Tax Freedom Day

June 27, 2005


Around this time of the year, the right-wing Fraser Institute announces the arrival of Tax Freedom Day. They report that, this year, it falls on June 25, until which Canadians have been working to just pay their taxes.

Recently, the left-leaning Canadian Centre for Policy Alternatives challenged the Fraser Institute’s numbers saying that the “calculations understate the income of Canadians, overstate their taxes and misuse the concept of averages”. The report argues that the Fraser Institute understates incomes and overstates taxes and thus makes exaggerated claims. The CCPA estimates Tax Freedom Day for a median Canadian family to fall on April 28.

Since I keep extensive records of what I earn, spend and pay in taxes, I thought I’d use those numbers and arrive at my own conclusions. For our household income, I am including all employment income and all taxable interest, dividends and capital gains. I am excluding all contributions to retirement savings because tax is simply deferred. For our total tax bill, I am including federal and provincial taxes, an approximation of sales taxes based on our total annual household expenditure and property taxes. I am not counting motor vehicle license fees, gas tax, tobacco tax (I don’t smoke), liquor tax, amusement tax and a million other taxes, since the sales tax is probably overstated. I am also including CPP contributions and EI premiums as a tax, though it is debatable.

Based on the above observations, I estimate Tax Freedom Day for our household to fall on April 13, much closer to the CCPA’s estimate. Some caveats though: our household expenses relative to our income is very low, so our sales tax bill is probably far lower than a typical Canadian family. We also contribute the maximum allowed to our retirement accounts resulting in hefty savings at our marginal tax rates.

Filing Taxes

April 10, 2005


The deadline (midnight of May 2, 2005) for fixing the tax return for 2004 is only a few weeks away. We will examine the various options to file taxes:

Pen and Paper:
A surprising number of people still file paper returns (about 50% according to the Canada Revenue Agency). The forms can be downloaded from the CRA website or obtained in printed form in many ways. While filing a paper return is free, it is also error-prone and tax refunds take about 3-6 weeks.

Tax Software:
A number of commercial tax software packages are available to assist in tax preparation. An error-free tax return can be generated fairly quickly. Many people still print out their returns with the software, but NETFILE is the best option. Refunds usually take only one week.

The biggest sellers are QuickTax, TaxWiz and UFile. Since tax software is a sticky application (most people like to download the previous year’s return), a lot of people just buy the software they bought the previous year. I think that TaxWiz is the best value in tax software and the download version is the cheapest.

Web Software:
Some vendors provide web-based applications for filing returns. These applications tend to be cheaper than retail software for single returns. However, tax data is being stored in remote servers and if data security is a concern, this method of filing is best avoided.

Tax Professional:
For complicated tax returns, it might be worthwhile to consider professional help from tax preparers like H&R Block. Another option is hiring a professional accountant, who can prepare taxes and also suggest tax-saving strategies and may easily be worth their fee.