Monday, 22 April 2013

Capital Cost Allowance in need of reform says CGA

A camel is a horse created by a committee goes the old saying ... or is it the other way round? It doesn't matter because the point still applies. Something that started out in 1949 being a nice simple method for the income tax system to take account of and treat capital depreciation fairly has transmogrified into a complicated mess doing things it wasn't designed or suited to do.

It's not dumb ole me saying this, it's the Certified General Accountants of Canada, which has just released a study that describes the problems - Is the Capital Cost Allowance System in Canada Unnecessarily Complex?. 

Among the particular issues:
  • proliferation in the number of classes from 12 originally to 56 in 2012
  • more complex and confusing wording for the classes
  • changing rates from year to year for the same thing e.g computers (I've encountered this myself trying to do my taxes in claiming computer equipment and it is frustrating and time consuming to figure out.)
  • special classes that misuse the CCA system to achieve industrial policy or economic incentives for certain industries

The end result, according to the CGA press release quoting Rock Lefebvre, FCGA and vice president of Research & Standards at CGA-Canada: “... it has added increased complexity to the tax system and the many changes introduced weakened the system’s equity and neutrality.” 

Good on the CGA for raising the issue. It's a little bit altruistic considering that the more complicated the tax system is, the more we have to pay accountants who know all the infuriating gotchas.

Let's hope that the federal government folks in Ottawa are listening and that if they act they do not give rise to a new saying going something like "a naked mole rat is an improved rat created by a government reform". See photos of the naked mole rat here.


Neil said...

It's not really altruistic. If your taxes are simple enough that you only need an accountant because CCA is too complicated, then you're almost certainly not paying enough to really make it worth your accountant's time. If your taxes are more complicated, then the extra work on CCA is just extra work for little or no additional revenue.

I just finished an 8 month tax course, and would have to say that CCA over-complexity is the least of the problems in the tax system. It's a symptom of the larger problem of governments being required to provide an a list of announceable policy changes to benefit voters. The proliferation of micro-credits, special rules for people are selling shares in private corporations, special rules for oil & gas exploration activity, special rules for manufacturing's just silly. Periodically we need to sit down and jettison the income tax act and return to its core principals, getting rid of 30 years of accumulated announceables that make the whole thing so unwieldly.

CanadianInvestor said...

8 months of taxes, now there's a brave man. makes me think of the quote Einstein supposedly made about their relative difficulty -

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