Filing tax returns, paying income tax, is saving us during COVID-19

TORONTO – There are only two things that all Canadians have in common. The first is that all Canadian kids likely licked a metal sign post in the winter just to see what would happen. Yup, your tongue got stuck — now what?! The second is filing tax returns each year.

During the pandemic, housing has become healthcare: “stay at home” orders are keeping us safe. During the pandemic, the government of Canada has had the power and the responsibility to support Canadians through payments like CEBA, CEWS, and CERB.

In 2020, the government of Canada redistributed income from those Canadians who are still working and doing alright financially to those who need help right now. This is part of our Canadian social safety net.

Those who cannot work to earn income and have burned through their savings are not going to “pull themselves up by their bootstraps.” And our government knows that to allow thousands of Canadians to sink into poverty is not in our collective best interest.

At the end of the day, there are only two ways that governments get money: through taxation and through borrowing. Taxes, including income taxes, is how governments provide infrastructure and needed services. Sometimes for rich people, who pay lots of taxes, and also for poor people, who pay less.

Of course, this is what makes our American neighbours recoil in horror, with battle cries of: “Socialism!” And in the same breath, they would rather receive payments of $1,400 rather than $600 per person approved by Congress, part of an 11th hour, $900B relief package.

Wait. What? A tax lawyer advocating for filing tax returns and paying taxes?

Am I advocating for paying more than my fair share? No. There is a difference between tax avoidance (legal) and tax evasion (illegal). Tax avoidance is part of sound tax planning.

Does government always spend tax money wisely? No.

The annual filing tax returns ritual is, of course, not unique to Canada. It is shared by all industrialized nations. However, it is important to remember that failed states and many developing countries provide minimal basic services precisely because they do not have a robust and effective tax system. The 2008 financial crisis in Greece occurred because hardly any Greek citizens paid their taxes.

When you think about it, the system of filing tax returns is quite amazing. Much of it is self-assessed. Everyone — from politicians to union members to nurses to self-employed entrepreneurs — is responsible for filing tax returns and paying income tax owing.

And the Canada Revenue Agency has 40,000 employees to deal with our taxes. When you compare this to about 69,000 police officers who protect us from all forms of crime, you realize how large an undertaking the tax system is.

There are 217,000 accountants in Canada who hold the CPA designation (three times the size of the Canadian Armed Forces) and many other bookkeepers and tax preparers, who help to deal with these annual personal filings.

Yes, there are tax cheats out there — Statistics Canada estimates the Canadian underground economy in 2016 at $51.6 billion, about 2.5per cent of GDP.

Tax cheats are aided and abetted by ordinary Canadians who would never think of cheating when filing tax returns. The biggest example:  paying cash to building contractors and renovators to save GST/HST.

Here’s the big “Aha!” Contractors who receive cash are not only avoiding paying GST/HST, they are also either not reporting or under-reporting the amount for filing tax returns.

When you agree to give a contactor or renovator cash, what you are really doing is paying their income taxes, too. How generous of you! Because the tax rate for all Canadians goes up to make up for that income tax shortfall.

As we head into the home stretch for tax season 2020, filing tax returns and paying our income taxes is what keeps Canada a great country to live in. And pays for the COVID-19 vaccines that will keep us alive.

David J Rotfleisch, CPA, CA, JD, is the founding tax lawyer of Rotfleisch & Samulovitch P.C., a Toronto-based boutique tax law firm. He appears regularly in print, radio and TV. With over 30 years of experience as both a lawyer and chartered professional accountant, he has helped start-up businesses, resident and non-resident business owners and corporations with their tax planning, with will and estate planning, voluntary disclosures and tax dispute resolution including tax litigation in Tax Court and the Federal Court. Visit www.Taxpage.com and email David at david@taxpage.com.