It’s tax time again which is why I was asked to be part of the Monday Money Panel on Alberta Primetime talking about tax planning. I was fortunate to meet Cleo Hamel, Senior Tax Analyst for H&R Block who shared some interesting statistics from a study that say Canadians are failing at tax knowledge.
Three out of four Canadians fail tax quiz
Canadians may be leaving money on the table at tax time because they do not have a good understanding of what can be claimed on their tax returns. Less than 25 per cent of Canadians provided the right answers when asked questions about their tax returns, according to a recent survey by Leger Marketing for H&R Block Canada.
Tax Quiz failings include:
- 82% of Canadians do not know how much a $1,000 RRSP contribution would save them in federal tax, assuming a taxable income of $50,000.
- Six out of 10 Canadians with children in the household are unaware that the lower-income spouse claims the childcare expenses.
- 40% of married or common-law Canadians do not realize that they each need to file their own return, with the other spouse’s information included.
- Only a quarter of Canadians answered correctly that they should file an Alberta return if they moved from Ontario to Alberta in June 2010 to take a new job.
- Three in four Canadians with children in the household do not realize that they are not entitled to claim any tuition or education credits unless their child transfers them.
- Only 27% of Canadians correctly said that healthcare premiums paid to the group plan at work are a medical expense.
Why all the ignorance?
I’m not a tax expert but I do believe part of financial success comes from learning about tax strategies to minimize the taxes you pay. I think it’s important for people, at a minimum, to understand the tax basics.
In my experience as a financial workshop educator, I am not too surprised by the findings in this survey. As an example, I see lots of people buying RRSPs because it gives them a deduction but they really don’t know the value of that deduction. People know it saves them tax but they don’t really know how much. Lots of people have told me they bought RRSPs just because they were told to do so.
I must say, I don’t really blame people for the ignorance. For most people, tax is not really a fun and exciting topic. It’s complicated and complex and the rules are constantly changing. Should we really expect people to know everything about tax?
I’ve always said, the information era has made it easier for the do-it-yourselfer to get it done including preparing your own tax return. There are many software options to help people file their returns. Although technology has made it easier to prepare your own taxes it may also be part of the problem for all this ignorance. It’s easier to prepare returns but it’s also made it less important to understand the rules because these programs take the thinking out of it.
I know from my own experience, computers have made it easier for an average speller like me to write because they fix spelling mistakes as I go. I know that I have more difficulty adding numbers without using a calculator because computers do it for me. Computers have made life easier in some respects but they also don;t encourage thinking as much, knowing as much or remembering as much. Do you think all these tools made us ignorant?