Direct Measures - Costs in Money

Indicators 1.1 through 1.4 measure the cost in time that Canadian small businesses incur in order to comply with tax obligations. These four indicators assess the time burden on small businesses. In the context of this benchmark, we equate time delays with added costs for small businesses.

• 1.1 - Hours expended complying with CRA requirements

Definition

A measure of the actual time spent by small businesses to satisfy legislated requirements administered by the CRA.

Benchmark

126 hours per year, per establishment.

Source

Statistics Canada, Survey of Regulatory Compliance Costs[Footnote 1]

Analysis

This indicator is an aggregate of the perceptions of small businesses concerning the time they spend complying with requirements administered by the CRA and the provinces.

• As shown in Table 1, T1 and T2 income tax filing represent the single greatest time commitment (approximately 41% of the overall time). This is followed by federal and provincial sales tax compliance (approximately 19% of the overall time) and payroll remittances (approximately 17% of the overall time). Harmonized sales tax (HST) which is the combination of GST and the Provincial sales tax (PST) is only administered by CRA in the provinces of Nova Scotia, Newfoundland and New Brunswick.
• Table 1 presents compliance requirements according to the categories established in the Survey of Regulatory Compliance Costs. We have presented the categories for which the CRA bears the majority of administrative responsibility. CRA's exact role may vary according to agreements with provinces, territories, and other federal departments.

Table 1: Estimate of the Average Time Spent Complying with CRA Requirements (in Hours)

Top of Page

Supplementary Information

Paying Taxes 2008: The Global Picture is a study commissioned by the World Bank to estimate the ease of paying taxes in 178 countries around the world. Data with respect to the number of hours spent complying with tax regulations cited in this study are very much in line with the results of the Statistics Canada Survey of Regulatory Compliance Costs. Overall similarities allow us to make broad comparisons.

• As shown in Figure 1, Canada ranks second only to the United Kingdom in terms of fewest compliance hours for businesses when compared with other G8 countries.
• Table 2 shows the ranking of G8 countries with respect to the ease of paying taxes.
• The ease of paying taxes is an index, determined by examining three indicators:
  • “the number of tax payments (includes consumption taxes, as well as reflects the method and frequency of payments);
  • “the number of hours to comply with the company's tax obligations” (includes the time to prepare, file, and pay three major types of taxes and contributions: corporation income tax; value added or sales tax; and labour taxes, including payroll taxes and social contributions) and
  • the total tax rate (“measures the amount of all taxes and mandatory contributions borne by the business in the second year of operation”^{[Footnote 2]} ).

Table 2: G8 Rankings for Ease of Paying Taxes

• Canada ranks 25^th out of the 178 countries in the study, and 2^nd in the G8 ranking.
• A relative comparison can be made with other countries of similar size and social structure.
  • In Sweden (Rank 42) taxes are paid online. One single form is used to pay several taxes such as corporation income tax, value added tax, labour contribution and property taxes.
  • Australia (Rank 41) and Finland (Rank 83), compared to Canada, perform less well in terms of ease of paying taxes and impose a higher burden.
• Of the countries that rank among the easiest to pay taxes, there are significant differences in approach to tax administration. As an example, the Maldives, ranked first, essentially have no corporate or business income tax.
• Canada's goal is not necessarily to rank first. Requirements are needed to maintain fairness and integrity of our taxation system and these requirements are not just imposed by the federal government but by other levels of government as well. The revenue generated through taxation makes it possible to implement social and economic policies that benefit all Canadians including small businesses.
  • 1.2 - Timeliness - Service standard results for small business-related services

Top of Page

Definition

A measure of delay experienced by small businesses in receiving services from the CRA.

Benchmark

Targets are met for 11 service standards out of a total of 13.

Source

CRA, Annual Report to Parliament

Analysis

Meeting service standards for small businesses is a key element in the process of evaluating services offered to them and, as such, an important factor in assessing the compliance burden. Service standards have been developed in cooperation with the stakeholders involved.

We help small businesses become familiar with the expected time required to process their information. These services involve providing relevant, specific information about deadlines for compliance obligations. Meeting service standards introduces a degree of reliability for small businesses in regards to their interactions with CRA.

• Table 3 presents the results of 13 activities related to businesses. At the end of the 2006-2007 fiscal year, the CRA met its targets for 11 of these activities.
• By meeting its targets, the CRA respects its commitment to small businesses regarding response times, and helps them control time and time-related costs associated with the compliance process.

The service standards in Table 3 are not directed solely at small businesses and are applied to all types of businesses. These data do not permit us to separate results for small businesses from all types of businesses. However, the CRA commitment to provide better service to all types of businesses will have a positive impact on the reduction of the compliance burden for small businesses due to the fact that the cumulative impact of legislative compliance results in a greater relative burden than larger businesses (see also, Indicator 2.1).

Top of Page

Table 3: Key Service Standards For Businesses

• 1.3 - CRA response rate for telephone enquiries

Top of Page

Definition

A measure of the delay experienced by small businesses in receiving telephone service from the CRA.

Benchmark

81% of business calls in the queue were responded to within two minutes, in 2006-2007.

Source

CRA, Annual Report to Parliament

Analysis

• As shown in Figure 2, the CRA met its business telephone enquiries target of an 80% response within two minutes. The annual result for 2006-2007 was 81% of responses within two minutes.[Footnote 3] 
• Despite meeting the target, the evaluation of the time that small businesses spent on regulatory compliance raises questions about the overall process for accessing telephone service agents, particularly for those who had to wait more than two minutes and those who were unable to access the queue.

Supplementary Information

The following are results from the “CRA Client Satisfaction Survey: Enquiries Telephone Line for Businesses and Self-Employed Individuals”, conducted in June 2005 by Phoenix Strategic Perspectives Inc.

• 44% of clients questioned (businesses and self-employed workers) indicated that they were able to speak with an agent on the first call; 35% indicated that they had reached an agent on the second or third call; and 17% were successful after four or more calls.
• 38% spoke to an agent within two minutes; 78% of respondents indicated that they had to wait on the line for five minutes or less to speak to the agent.
• 13% of respondents were able to speak with an agent in 6 to 10 minutes, and 4% waited more than 10 minutes.
• Satisfaction is generally higher among small businesses, 81% compared to larger businesses, 74%.
  • 1.4 - Perceived changes in overall compliance costs (time) and perceived reasons for those changes

Indicator 1.4 (perceived changes in overall compliance costs in time and perceived reasons for those changes) and indicator 2.2 (perceived changes in overall compliance costs in money and perceived reasons for those changes) have been combined.

The Statistics Canada Survey of Regulatory Compliance Costs does not currently separate the cost in time from the cost in money.

Please see Indicator 2.2.

Indicators 2.1 and 2.2 measure the cost in money of complying with tax obligations. They assess the financial burden on small businesses related to these obligations.

• 2.1 - Costs to file taxes (e.g. third party providers)

Top of Page

Definition

A measure of the actual amount of money spent by small businesses to satisfy legislated requirements administered by the CRA.

Benchmark

The average annual direct cost per establishment to file taxes is $2,899.70.

Source

Statistics Canada Survey of Regulatory Compliance Costs[Footnote 4] 

Analysis

As shown in Table 4, the most costly financial obligations for small businesses are T1 and T2 income tax filing ($1,171.30) and payroll remittances ($555.30).

Table 4: Average Annual Cost per Establishment and Average Cost per Employee to Comply with CRA (All small business sizes)

Most small businesses use external service providers to comply with some or all of their regulatory requirements. For example, 71.1% use an accountant, 11.2% use a payroll service provider, 7.3% use tax preparation services, and 11.6% use other types of external service providers. These external costs account for a large percentage of total compliance costs.

• Table 5 and 6 provide external and internal costs for payroll remittances, and T1 and T2 income tax. These costs are broken down by business size.
• The figures in Table 5 indicate that, even though the average annual cost per establishment for payroll remittances increases as the size of a business increases, the average compliance cost per employee is significantly higher for a business of one to four employees ($180.60) than for a business of 100 to 499 employees ($17.40). This indicates that small businesses with one to four employees have a higher burden: about 10 times that of small businesses with 100 to 499 employees.
• For small businesses of all sizes, external costs are higher than internal costs for payroll remittances.

Top of Page

Table 5: Average Annual Cost per Establishment per Employee per Business Size (Payroll Remittances)

• As with payroll remittances, Table 6 shows that the average compliance cost per employee for T1 and T2 Income tax filing is significantly higher for a business with one to four employees ($371.60) than for a business with 100 to 499 employees ($24.90). The burden for T1 and T2 income tax filing is almost 15 times as great for a one to four employee business than for a 100 to 499 employee business.

Table 6: Average Annual Cost per Establishment per Employee per Business Size (T1 and T2 Income Tax Filing)

• 2.2 - Perceived changes in compliance costs (money) and perceived reasons for those changes

Definition

A measure of small business perception of compliance costs in money.

Benchmark

30% of small businesses perceived the compliance burden to have increased over the past three years.

Source

Statistics Canada, Survey of Regulatory Compliance Costs[Footnote 5] . The Statistics Canada study does not separate the cost in time from the cost in money. The discussion for this indicator includes both aspects.

Analysis

In this indicator, perceived compliance costs include both time and money.

• As shown in Figure 3, while the majority of small businesses surveyed believe that costs have remained the same, a significant proportion believe that they have increased. The impact of compliance cost on small businesses is an important issue. Changes in these costs, whether perceived or actual, are therefore important as well.

Top of Page

Small businesses that participated in the study identified various reasons for the perceived increase in compliance costs.

• As shown in Figure 4, the complexity of regulations (55%) and the volume of submissions (38%) are the main reasons for the perceived increase in compliance cost.
• The perception of change in compliance cost reflects the total regulatory burden imposed on small businesses. As defined by the Survey of Regulatory Compliance Costs, the CRA administers the majority of the requirements for most businesses.

Top of Page

Supplementary Information

The Canadian Federation of Independent Businesses (CFIB), a business interest group, also measures compliance burden and costs. There has been a shift in how its members perceive changes in the cost of compliance.

The 2005 CFIB study on the regulatory compliance imposed on business by all levels of Canadian government, Prosperity Restricted by Red Tape, shows that the burden is greater on smaller businesses than on larger ones. The study revealed that, of all industries aggregated:

• 59% of small businesses perceive the regulatory burden as having increased over the past three years.
• 39% of small businesses perceive no change to the regulatory burden.
• 2% of small businesses perceive the regulatory burden as having decreased.

The 2008 CFIB study, Canada Revenue Agency Report Card - A Small Business Audit of the CRA, reveals different results in terms of the perception of the overall administrative burden imposed over the past three years:

• 39% of small businesses perceive the burden as having increased.
• 58% of small businesses perceive no noticeable change.
• 3% of small businesses perceive the burden as having decreased.

It is interesting to note that results from the 2008 CFIB survey are very close to the results from the Statistics Canada survey shown in Figure 3.

[Footnote 1]
Survey conducted every three years; next survey in 2008.

[Footnote 2]
Paying Taxes 2008 The Global Picture

[Footnote 3]
It is important to note that results cannot be broken down according to small business alone. Overall, the results provide a reasonable indication of the level of service offered.

[Footnote 4]
Survey conducted every three years; next survey in 2008.

[Footnote 5]
Survey conducted every three years; next survey in 2008.