# I love Canadian taxes



## james4beach (Nov 15, 2012)

I'm not being sarcastic. I enjoy doing the Canadian tax returns and I appreciate the process now more than ever before.

A year ago I started working in the US, and I've been preparing a US return. There are some big differences from Canadian tax filings. In the US, individual states have radically different rules and procedures. The returns are very much separated from the federal return so you have two disjoint processes. In Canada, they are nicely integrated into a single filing -- which means the payable/refund is also a single number. Nice!

Going through the paper forms, I can also tell you that the Canadian instructions and rules are much simpler. There are fewer caveats and special cases. Our tax code seems superior to the US tax code, and less messy. At least when it comes to individual taxes.

*The really big difference*, though, is the perspective the CRA takes towards taxpayers vs the IRS. I've talked about this with other colleagues of mine who have worked in both countries and we agree on this point. The US tax system seems rooted in an adversarial psychology... that every taxpayer is out to cheat and everyone is up to something wrong. i.e. American crime-and-punishment psychology. The IRS is very aggressive and emphasizes enormous penalties for everything. But of course their tax code is horribly complex so it's difficult to be in full compliance. So you end up with this horrible situation where it's impossible to be "fully compliant", so even the well meaning tax payer feels like they are a criminal being hunted by the IRS.

The CRA feels different to me. I never got that feeling that "everyone is a cheat", nor do I think the CRA is aggressive. I've been audited once, and my parents have too, and both cases were very smooth and resulted in minimal net payable difference.

Then there's actual taxes paid. Do you think we Canadians pay more taxes than Americans? It depends on the state, but most Canadians I know work in California. Taxes are high in California. I just finished an Oregon return which is about the same level as California. Doing the foreign tax credits, I discovered that net US taxes are higher than my Manitoba and Ontario taxes.

Yes you heard that right. If you live in Ontario or Manitoba (and by extension many other provinces) you pay less income tax than Americans. Now think of the amazing services you get along with that. Health care.

It's a fantastic deal. We Canadians have it great!


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## OnlyMyOpinion (Sep 1, 2013)

Thanks for the perspective. It will serve as a good reminder to moderate my expletives this upcoming tax season. There are a few such things (credit card chips, land titles, imperial measurements) that remind me we're not always just drawing water and chopping wood up here


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## Barwelle (Feb 23, 2011)

I gotta say, James, that your posts over the last year or so comparing your experience in the US vs back home have completely turned me away from ever considering working south of the border.


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## Guban (Jul 5, 2011)

I have to agree with James.

Based on my limited experience with the IRS compared to my more extensive dealings with the CRA, the people at CRA are trained to be much nicer. Although, perhaps, it's just that they are Canadian, and that they really are nicer! (Note to all: joking! Individuals are different throughout the world.)

Their tax system seems to be a bit more invasive, requiring lots more disclosure than our system. This may be changing, however as our T1135 form is looking more and more like FBAR disclosures. I like that we get a Notice of Assessment too. Mailing stuff to the IRS seems like sending it into a one way void, and I'm never sure if they actually received it. Registered mail would fix that, but it seems to be an unnecessary thing that people should have to do.

Waiting for fatcat to share his thoughts as someone who really knows...


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## WiseOwl (Jan 1, 2015)

I too appreciate our system here. It is complex, but generally very logical.


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## uptoolate (Oct 9, 2011)

Always happy to pay my taxes. Pretty good value for money. Even happier to be Canadian.


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## OurBigFatWallet (Jan 20, 2014)

Interesting article about how Canadian tax cheats are rarely jailed

http://www.cbc.ca/news/business/tax...-cheats-in-canada-are-rarely-jailed-1.2960595


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## fatcat (Nov 11, 2009)

i have heard and read that the american ombudsman system is much _stronger_ than the cra's
by which i mean you have more protection as a taxpayer in the case of disputes than you do when dealing with the cra

you have two completely different mindsets in the two countries
american's have an inborn distrust of government 

canadians have a much stronger sense of the concept of "fairness"
it is one of the things i admire most about canada

as far as taxes go the biggest frustration i have is that you send massive data to the treasury and the irs and you get not a postcard in response, nothing, zero

the cra at least responds with assessments ... it makes the usa look primitive by comparison and doesn't help spread the love for the irs


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## Danyjack (Feb 24, 2015)

*Tax Services*



james4beach said:


> I'm not being sarcastic. I enjoy doing the Canadian tax returns and I appreciate the process now more than ever before.
> 
> A year ago I started working in the US, and I've been preparing a US return. There are some big differences from Canadian tax filings. In the US, individual states have radically different rules and procedures. The returns are very much separated from the federal return so you have two disjoint processes. In Canada, they are nicely integrated into a single filing -- which means the payable/refund is also a single number. Nice!
> 
> ...



yes there is big difference between the tax policies of two countries and it is quite common every country has its own terms and conditions for its tax statements. We the canadians have great tax policies and also have great tax services in Calgary and all over the Canada.


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## Danyjack (Feb 24, 2015)

*good citizens*



uptoolate said:


> Always happy to pay my taxes. Pretty good value for money. Even happier to be Canadian.


hjh


Yeah! the good citizens always feel happy to pay taxes... like u


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## james4beach (Nov 15, 2012)

Maybe I should balance out my complaints about US taxes. To be fair, any time you switch countries you're going to have tax headaches.

Also I think someone with less money and fewer assets (maybe a young worker at the start of her career) would have an easier time moving to the US. I think the Canada-US tax transition becomes more difficult when you own investments, ETFs, TFSA, etc.

However for someone who is well established in Canada with significant investments, bank accounts, TFSA, pension etc... I think the tax consequences of moving to the US can be horrendous.


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## hboy43 (May 10, 2009)

James:

I wonder if you have ever estimated your total taxation. Including taxes paid on my behalf by the abstractions I own on an annual expenditure of about $60K I figure we pay $80K total tax, with a wide margin of error say +- $20K. At first blush this sounds like an unreasonable estimate until one considers that taxation as a percentage of GNP is something like 43% or 47%. Then consider we are wealthy/high income and 80/140 = 57% no longer looks completely out to lunch.

hboy43


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## Pluto (Sep 12, 2013)

Here is a copy of Donald Rumsfeld's letter to the IRS:

http://www.economist.com/blogs/democracyinamerica/2014/04/donald-rumsfeld-s-taxes


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## heyjude (May 16, 2009)

james4beach said:


> Maybe I should balance out my complaints about US taxes. To be fair, any time you switch countries you're going to have tax headaches.
> 
> Also I think someone with less money and fewer assets (maybe a young worker at the start of her career) would have an easier time moving to the US. I think the Canada-US tax transition becomes more difficult when you own investments, ETFs, TFSA, etc.
> 
> However for someone who is well established in Canada with significant investments, bank accounts, TFSA, pension etc... I think the tax consequences of moving to the US can be horrendous.


Very true. I lived in the USA for several years in my 20s, moving there from another country. At that time all I had was a savings account and taxes were pretty simple. Then I moved to Canada and had one year when I had to submit tax returns to both countries. That was complicated and the guides were so confusing I could not figure out whether I owed $500 or $2500. I took my information to a local accountant who completed both returns at a cost of $25 and got me a refund of $2000!

Years later, Canadian friends in mid career moved to the USA. They had deemed disposition to deal with. It cost them a huge chunk of their existing savings. In the long run, they said it wasn't worth it.


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## Guban (Jul 5, 2011)

Pluto said:


> Here is a copy of Donald Rumsfeld's letter to the IRS:
> 
> http://www.economist.com/blogs/democracyinamerica/2014/04/donald-rumsfeld-s-taxes


Very interesting letter. Note that the signature portion of the 1040 return just says that "to the best of my knowledge and belief, they are true, correct, and complete". It doesn't say that the tax return is really correct.

On the other hand, what we sign for our Canadian return is "I certify that the information given on this return and in any documents attached is correct and complete". I think the US one is more accurate. Ours sounds more like the "I agree that I have read all of the conditions" box that we check online. Liars!


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## Eclectic12 (Oct 20, 2010)

Re: younger worker at start of career would have an easier time ...

Maybe ... but then again, I've read here that the TFSA is much better than the American equivalent.


Cheers


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## james4beach (Nov 15, 2012)

hboy43: I haven't calculated total taxes in "everything" between where I've lived in US vs Canada. In this post I was focusing on income taxes (because it's a painful process) but yes there are other factors... sales tax for instance.


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## Davis (Nov 11, 2014)

As a former tax policy professional, it is heartening to see some appreciation for the Canadian tax system. It really is pretty good. At the same time, drawing that conclusion on the basis of comparison to the US tax system is setting the bar pretty low. "The winter in central Canada wasn't all that bad -- compared to the Maritimes". 


The Canadian tax system could and should be much simpler. (A flat tax system isn't the silver bullet for tax complexity though.) The problem is that tax simplification isn't a winning election slogan. People will vote for lower taxes over simpler taxes any day. And as some governments have found, the winningest strategy is often lower tax for _some_ people (yes, I'm looking at you, family income splitting). Often these selective tax cuts introduced even more complexity (yes, we're all looking at you, family income splitting). But no matter complex, these tax cuts will be popular with those who will see their taxes lowered.


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## andrewf (Mar 1, 2010)

One good thing about the Canadian tax system is that there are relatively few worthwhile ways of gaming it to reduce tax burden. Some of the remaining ways I can think of are mainly related to converted loans for personal consumption into investment loans, for which interest expense can be deducted. It's hard to close this 'loophole'. It would be a bad idea to allow mortgage debt for personal property to be deductible from income.

Same goes for financial instruments that attempt to convert income from dividend or 'other income' into capital gains.


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## lb71 (Apr 3, 2009)

I have a friend who spent a few years in the US on an expat assignment. He had an accounting firm do his taxes (Canadian and US) while he was down there, including the year of his return. Yet more than two years after his return he was still dealing with the IRS to finalize amounts owed for that transition year he returned. (The accountant was, and then letting him know the outcome.) It was a back and forth, and he always seems to be writing them a cheque for $30 or some nominal amount.


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## warp (Sep 4, 2010)

James: 

While I respect the fact that you have a right to post your opinions at any time, I have noticed that many of your posts border on the loony side...at least to me.

This post about how you enjoy our ludicrous , complicated. and just plain stupid tax system, sets a new high bar for you.

Comparing the Canadian system to the US system is like saying you would rather be stabbed than shot...neither a particularly pleasant experience.


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## lb71 (Apr 3, 2009)

I think you are missing the point. After experiencing both tax systems, James has come to appreciate that our system is not as complicated as everyone thinks it is.


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## CPA Candidate (Dec 15, 2013)

If you've only ever done personal returns, I can understand thinking that taxes aren't that bad, but corporations are a nightmare.


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## oob (Apr 4, 2011)

James - not to sidetrack your thread too much, but if you had to do it again, how would you "minimize" the complexity of moving south of the border and back from a financial/tax perspective.


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## Davis (Nov 11, 2014)

Again comparing to the U.S., in Canada, the federal government, eight provinces and three territories have a single tax administrator for corporate income tax, and use the smae definition of taxable income. The other two provinces use broadly similar systems, and there is a commonly accepted way formula for allocating coprate income between provinces and territories. This makes things much simpler than in the U.S. where conflicting rules make double taxation a fact of life, and complicate tax planning and filing.


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## RCB (Jan 11, 2014)

Warp, I have to wonder if you've ever looked at or completed US tax returns and forms.

One thing I love about the Canadian tax reporting system is the Notice of Assessment. Once your return has been processed, you quickly receive said Notice, and can see that CRA has received your return, has processed it, and if they agree or not with your reporting. This does not happen in the US, a return goes into a black hole.

As someone who can accurately bang out Canadian personal tax returns, I was caught up in the BS of having the US reimpose citizenship upon me, and thereby acquiring the responsibility to enter the US tax system. One deep look at the forms and I decided no way. What a quagmire.


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## fatcat (Nov 11, 2009)

Davis said:


> Again comparing to the U.S., in Canada, the federal government, eight provinces and three territories have a single tax administrator for corporate income tax, and use the smae definition of taxable income. The other two provinces use broadly similar systems, and there is a commonly accepted way formula for allocating coprate income between provinces and territories. This makes things much simpler than in the U.S. where conflicting rules make double taxation a fact of life, and complicate tax planning and filing.


assuming you are in a state that has an income tax

Alaska
Florida
Nevada
South Dakota
Texas
Washington
Wyoming

do not
i lived in washington and so only had to do the federal form



> One thing I love about the Canadian tax reporting system is the Notice of Assessment. Once your return has been processed, you quickly receive said Notice, and can see that CRA has received your return, has processed it, and if they agree or not with your reporting. *This does not happen in the US, a return goes into a black hole.*


 this is probably the most deeply frustrating thing about the american system and where the cra for all of it's faults does do a good job ... when i moved here and got my first assessment i was just kind of astounded and pleased


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## warp (Sep 4, 2010)

RCB said:


> Warp, I have to wonder if you've ever looked at or completed US tax returns and forms.
> 
> One thing I love about the Canadian tax reporting system is the Notice of Assessment. Once your return has been processed, you quickly receive said Notice, and can see that CRA has received your return, has processed it, and if they agree or not with your reporting. This does not happen in the US, a return goes into a black hole.
> 
> As someone who can accurately bang out Canadian personal tax returns, I was caught up in the BS of having the US reimpose citizenship upon me, and thereby acquiring the responsibility to enter the US tax system. One deep look at the forms and I decided no way. What a quagmire.


RCB:

Like you, I can accurately bang out Canadian personal tax returns. In fact I do all my family's returns..about 12 in all, ( free of charge by the way)...and help out many friends too.

I can say however, that none of them could do their own returns. That means, at least to me, that they are way too complicated and stupid. As far as US tax returns goes...no, i have never had the misfortune to have to do one, thank God.
That does mean that our system though it may be "better" than the US one, is any good at all. If you have one job , with one T4, the average person MIGHT be able to fill a tax form out. Canadian Tax returns can quickly become very complicated and time consuming if you have several sources of income..especially investment income.
One year I got 31 T5's, and each had several different "types" of income on them. And if you ever get a T5013..which has 119 boxes on it, for diff income sources, you might pull your hair out.

I am only worried about our tax system, not the one in the US. 

What we need is a FLAT TAX...with a reasonably simple 2 page return.


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## sags (May 15, 2010)

But you know what would happen with a flat tax..........

People would be lined up wanting "exemptions and deductions" for dividend income, capital gains, low income, pension income, cash for putting kids in hockey, .............and on and on.

Politicians couldn't bribe us with our own money, someone else's money, or money they have to borrow and don't intend to ever pay back.


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## fatcat (Nov 11, 2009)

warp said:


> RCB:
> 
> Like you, I can accurately bang out Canadian personal tax returns. In fact I do all my family's returns..about 12 in all, ( free of charge by the way)...and help out many friends too.
> 
> ...


i agree in principle about the income tax, i would like to see a consumption tax

i don't quite agree on the tax return, it's really just a matter of putting the right number in the right box and keeping good records

for those that can't they basically pay another "tax" which is a trip to hr block and $79 (or whatever it is) to get their return done for them

in both canada and the usa you have a long chain of special interests effectively bending the tax code in their favor which makes it increasingly complex


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## Davis (Nov 11, 2014)

How difficult are our tax brackets and rates? And how much times do they take to calculate now that 80% of filers do so electronically? The progressive rate structure is not what complicates our tax system. It is definitions of income, and various deductions and credits. The flat tax idea is just a distrasction from the real issue of tax simplification.


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## bgc_fan (Apr 5, 2009)

Davis said:


> How difficult are our tax brackets and rates? And how much times do they take to calculate now that 80% of filers do so electronically? The progressive rate structure is not what complicates our tax system. It is definitions of income, and various deductions and credits. The flat tax idea is just a distrasction from the real issue of tax simplification.


This is the point that people seem to miss, or gloss over with the idea of a flat tax. How many people would like to give up the dividend tax credit or paying taxes on o ly 50% of realized capital gains? I suspect when you start enumerating the existing tax credits or breaks, people will say to eliminate the ones that don't benefit them but keep the others.


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## james4beach (Nov 15, 2012)

lb71 said:


> I think you are missing the point. After experiencing both tax systems, James has come to appreciate that our system is not as complicated as everyone thinks it is.


Yes that's what I'm saying. Experiencing the US tax system is making me appreciate the Canadian one much more.



oob said:


> if you had to do it again, how would you "minimize" the complexity of moving south of the border and back from a financial/tax perspective.


I would (1) shut down my TFSA so that it was not open any time in the year I'm a US resident, (2) sell all non-registered Canadian mutual funds and ETFs before moving, (3) reduce the number of open Canadian bank accounts, (4) factor in expected tax accountant costs before accepting a job (it's going to be 1K to 2K this year)


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## Eclectic12 (Oct 20, 2010)

warp said:


> ... Like you, I can accurately bang out Canadian personal tax returns. In fact I do all my family's returns..about 12 in all, ( free of charge by the way)...and help out many friends too.
> I can say however, that none of them could do their own returns. That means, at least to me, that they are way too complicated and stupid...


If you are volunteering ... why would they bother?

In an case, most I know who don't do their tax return seem to have no problem with similar calculations for their hobbies. Like investing, they seem to prefer their perception versus doing it themselves.
For my family (and the friends who are willing to talk about it), it's more like 90% do it themselves and 10% have someone else do it.


If I use your criteria - then I can conclude it's easy. :biggrin:


Cheers


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## Guban (Jul 5, 2011)

The US tax code was actually simplifed in 1986 to remove many tax shelters and reduce the number of tax brackets among other things.
http://en.m.wikipedia.org/wiki/Tax_Reform_Act_of_1986

I did not live through it, but simplification sounds good in my books. Unfortunately, as the posters above have described, politicians have tinkered and bribed voters with our own money and since have introduced many modifications and complexities.

Canada's system is also getting more and more complicated. I tend to agree with a previous post about shot vs stabbed.


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## warp (Sep 4, 2010)

I would like to make the point that with a FLAT-TAX, you could still have progressive tax brackets, and "inclusion rates"

regular income , fully taxable
investment income, including dividends, 50% taxable
etc

Tax rates, could go up as income goes up....as they do now

What we need to get rid of, as some posters have already suggested is all these stupid deductions and credits.....which the politicians use for social engineering, and to try and garner votes right before elections, by bribing us with our own money..( or should I say our own borrowed money)


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## Davis (Nov 11, 2014)

warp said:


> I would like to make the point that with a FLAT-TAX, you could still have progressive tax brackets, and "inclusion rates"
> 
> regular income , fully taxable
> investment income, including dividends, 50% taxable
> ...


I agree with the approach you proposed, I've just never heard anyone call it a flat tax. "Flat tax" is always used to refer to a single rate on all income, without differentiation and without a bunch of tax preferences. 

The rules for determining what is a capital gain or a dividend add complexity to prevent people from recharecterizing other income to get a lower rate. Further, most people consider the Dividend Tax Credit to be one of the most complex parts of the system, although it achieves what it is intended to.

A lot of the tax credits are things that would be hard to give up - medical expenses, charitable donations, tuition. There aren't really that many that fall into the political pandering category - family tax cut, first-time homebuyers, transit tax credit. These, however, are really egregious because they add complexity to an already complex system.


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## Guban (Jul 5, 2011)

^ I would suggest that anything added in the last, oh... Dozen years or more is just political pandering and minute social engineering? My personal "favourite" in this category is the textbook amount. Can anyone tell me how it differs from the education amount? When can one be claimed, but not the other? If this is the case, why not just increase the education amount by the textbook amount, and reduce that many paragraphs from the income tax code? It just causes confusion by thinking that we should save our textbook receipts. It has nothing to do with textbooks!


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## Addy (Mar 12, 2010)

I have found, for the most part at least, dealing with CRA has not been a horrible experience. They have made mistakes in the past, and so have I, but generally they ask for me to pay what's owing with little to no penalty and get on with life.


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## Barwelle (Feb 23, 2011)

Guban said:


> ^ I would suggest that anything added in the last, oh... Dozen years or more is just political pandering and minute social engineering? My personal "favourite" in this category is the textbook amount. Can anyone tell me how it differs from the education amount? When can one be claimed, but not the other? If this is the case, why not just increase the education amount by the textbook amount, and reduce that many paragraphs from the income tax code? It just causes confusion by thinking that we should save our textbook receipts. It has nothing to do with textbooks!


I do wonder about this. I am taking an online course in which there are no textbooks. Am I not supposed to claim the deduction? On one side, it is a "textbook" amount so if I don't buy textbooks, logically speaking, I shouldn't claim it. But, on the other hand, all it asks is for the number of months in a certain box on the T2202, which as you point out is the same as the box for the education amount... 

Anyways, you make a good point.


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## bgc_fan (Apr 5, 2009)

Guban said:


> ^ I would suggest that anything added in the last, oh... Dozen years or more is just political pandering and minute social engineering? My personal "favourite" in this category is the textbook amount. Can anyone tell me how it differs from the education amount? When can one be claimed, but not the other? If this is the case, why not just increase the education amount by the textbook amount, and reduce that many paragraphs from the income tax code? It just causes confusion by thinking that we should save our textbook receipts. It has nothing to do with textbooks!


That must be a new thing. The last time I claimed educational expenses, there was no separate textbook box. I kind of assumed that the educational box was supposed to incorporate textbooks and other miscellaneous things like paper and pens.


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## Guban (Jul 5, 2011)

bgc_fan said:


> That must be a new thing. The last time I claimed educational expenses, there was no separate textbook box. I kind of assumed that the educational box was supposed to incorporate textbooks and other miscellaneous things like paper and pens.


This source indicates that it was introduced in 2006. Wow, was it really that long ago? Still hanging around, with its bad name. CPA also indictes that it is intended to help out with the costs of textbooks, but is only calculated using time severed in school, not using any link to the cost of any books. Yes Barwelle, logically the name would imply that there is a link to the cost of textbooks, but logic does not necessarily work with taxes.

http://www.cpaontario.ca/MediaRoom/MediaReleases/2008mReleases/1009page9182.aspx


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## Davis (Nov 11, 2014)

It was likely introduced as a separate credit so that the Minister of Finance could announce something flashy and new. Asking students to keep receipts to calculate it and to present in case of audit would have added unnecessary compliance burden since we know that textbooks are ridiculously expensive, and students have to buy them. CRA wisely rolled it into the tuition amount after the first year or two, if I recall correctly.


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## Guban (Jul 5, 2011)

Davis said:


> It was likely introduced as a separate credit so that the Minister of Finance could announce something flashy and new. Asking students to keep receipts to calculate it and to present in case of audit would have added unnecessary compliance burden since we know that textbooks are ridiculously expensive, and students have to buy them. CRA wisely rolled it into the tuition amount after the first year or two, if I recall correctly.


Agree with the announcement, and speaks to the political pandering. Don't recall the roll in, though. Always thought that it was calculated in this way.


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