GENERAL ARTICLES

THEY CAN TAKE IT

Got income tax blues? Brother, you’re not alone—there are 2,100,000 like you . . . But you really should pity the poor tax collector

CLEMENT BENSON April 15 1944
GENERAL ARTICLES

THEY CAN TAKE IT

Got income tax blues? Brother, you’re not alone—there are 2,100,000 like you . . . But you really should pity the poor tax collector

CLEMENT BENSON April 15 1944

THEY CAN TAKE IT

CLEMENT BENSON

SHE WAS tiny, old and frail. She looked like a grandmother—gentle face, nice eyes, white hair. She was sitting by the desk of the chief assessor of the Toronto office of the income tax collection’s branch when he arrived to begin one of his worst days—the last of the year (1943) for paying income tax.

“Young man,” she said without preliminary, “if you tell me how much I owe, I’ll pay you—right now.” Her voice was hard. The assessor sensed trouble. “You pay the cashier, not this department,” he answered, “but if you tell me the source and amount of your income, we’ll fix you up in a minute.”

“You mean I have to tell you where I got my money? . . . Well, I won’t; I can’t! I’ll tell you how much but not where I got it—not this year!”

The assessor started to explain that if she had a bank account eventually her income would be discovered and she would be liable to a fine if she hadn’t filed a return. He never finished, however, for she interrupted angrily.

“My bank account! You’d steal it from me! You’re all tricksters!” she stormed.

Then from ladylike lips came a stream of profanity to match anything ever uttered by a teamster or deep-sea man. Another, “You can’t make me tell—I won’t”—and indignation strode haughtily from the office.

That was a year ago and as far as the assessor knows, the old lady didn’t pay her tax. Where she got her money, why she was afraid to talk about it, he

couldn’t guess. But of one thing he was grimly certain—she would pay, soon or late.

There is only one sure way of getting your name removed from the records of the income tax branch of the department of national revenue. That is by death. At present every person in Canada is required to file a return whether he’s a taxpayer or not. Anyone who doesn’t is liable to a penalty—up to a $10,000 fine—and no passage of time, no statute of limitations or prescription will ever rub out either the offense or the debt. A debt to the Crown is perpetual. If they don’t catch up with you in life, they can dig into your estate and collect any amount found owing the department. Investigating one estate recently the department found income that should have been taxed 20 years before death.

Of course, if you go bankrupt you are not bothered by the tax collector. But your name remains on record and if you ever get out of the red the tax collector will be waiting for you. Even if you leave the country your name remains on the Doomsday Book, for one day you may return to Canada.

Actually, it’s not a book at all. In Toronto, for instance, it requires a room almost as long as a city block to house the records of the city’s taxpayers. One hundred girls are employed to keep the files in order. Often referred to as the “agony room” its records go back to 1917 when income tax was first introduced to this country under the guise of a “temporary measure,” even as it had been introduced to England more than a century before.

In an office as big as the Toronto branch, where upward of 5,000 taxpayers make enquiries daily, incidents like that of the old lady are not uncommon. Most of the 5,000, however, are ordinary citizens

troubled with tax doubts, though assessors do get some strange and sometimes embarrassing questions put to them. Like the one asked by a pretty, smiling nurse who approached an assessor waving a tax form. • “Shall I take my uniform off?” she asked. Then, sensing the embarrassment of the middle-aged assessor, she explained: “Silly, you don’t understand. Because I’m a nurse I want to know if I can deduct for my uniforms.” (Nurses are permitted small deductions of this nature.)

Nor should all old ladies be judged by the one with the strong language. Some pay taxes when they know they don’t have to. Persons over 65 with an income of less than $5,000 are not liable for the savings portion of the tax. It is a matter of record, however, that some women pay it rather than admit they are over 65.

Harassed Assessors

AS FOR the assessors, they are probably the most L harassed of all working men —especially now that the April 30 dead line is approaching. And they don’t like to talk about their business. Not even the military are more elaborately secretive than the men

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Got income tax blues? Brother, you’re not alone—there are 2,100,000 like you . . . But you really should pity the poor tax collector

They (an Take It

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of the Income Tax Division. When you go to see an official you have to get the same kind of pass required by defense departments to ward off spies and saboteurs. Nobody’s income tax file can be taken out by anyone— not even the director himself — without a voucher first being signed. If any information from such a file were ever divulged by an official, the culprit would not only be dismissed but could be prosecuted.

feo income tax people are conditioned to secrecy. At the same time, however, they have a rather pathetic desire to have their case put before the public. 1 hey’re tired of being represented as a cross between the Gestapo and the Inquisition. They’d like it known that at heart they’re really very human fellows.

Assessors must have a sound accounting background and when first hired they are given a special training course in taxation. Only after he is fully familiar with all possible questions about income tax is he permitted to meet the public. No “new” men are taken on to accommodate rush periods. All assessors are year-round employees.

When I went into the Toronto office my first impression was that it was a madhouse. Too many people were asking too many questions. The taxpayers were confused, uncertain, definitely unhappy. Some were mean and ornery; ethers filled with downright cussedness. Actually, however, there was no chaos in the room at all and once accustomed to it, I found it run with smooth efficiency despite the babble and chatter. Taxpayers approached a long counter, stated their problems and were assigned to assessors inside the barrier. After that a taxpayer’s problems became fairly simple— his tax computed in a matter of minutes.

Such freely offered advice wasn’t available during those years when only a comparatively few paid income tax. In 1930, for instance, only 142,000 people in Canada paid personal income taxes. F ven in 1939 the number was only 264,800. Just before the war (early 1939) 1,300 employees handled the tax system for all Canada. Today they number 5,000. Toronto alone has 800.

In 1942 individuals paid from their personal incomes more than $551,000,000 while 16,000 corporations paid an additional $80;>,000,000 (including excess profits taxes). In 1939 individuals paid about $47,000,000 while 12,500 corporations paid $95,000,000.

Unlike the United States, where some fabulous incomes are reported annually, relatively few people in Canada enjoy very high incomes. Though no current official figures are available, estimates based on the most recent figures and information taken from the census show that only about 2,400 persons in the Dominion pay taxes on an income of more than $25,000. Approximately 11,500 pay on incomes ranging from $25,000 to $10,000. Another 41,000 pay on

incomes between $10,000 and $5,000.

Going on down the scale: 365,000 earn^ between $3,000 and $2,000; 1,225,000 between $2,000 sind $1,000[ and 325,000 between $1,000 and $660.' More than 2,100,000 will pay some kind of tax.

Majority Ilonest

The great majority of these 2,100,000 taxpayers are honest and cause the tax collector little trouble. This year, however, confusion about the percentage of tax deducted from all wage and salary payments at the source is a headache for everybody—collectors as well as payers. Most salary and wage earners thought they had been paying 95% of their taxes at the source and would pay only 5% at the end of April. Now they find they have to pay anywhere up to 15% of the total on April 30. One reason is that for the first three calendar months of 1943 only 90% of the tax was collected. Another is that the tables used during the rest of the year in many cases didn’t call for the collection of the full 95%.

Paying income tax is not a new form of government revenue, though most people associate its beginnings with the last war. In England it was known as early as the year 1450 and then, as now, it was a graduated tax. The rate ran from 2j¿% to 3j 2%.

There is no record of the tax again until 1800 when it was introduce for a very short time with rates running as high as 10%. In 1842 it arrived to stay in England but it' was not until 1909, 67 years after its introduction, that Lord Asquith declared it “an integral and permaneitt feature of our financial system. Until then it had been listed as a “temporary measure.”

In Canada the first income tax—— levied on both personal and corporation incomes in 1917 — raised only $9,349,000. By 1920 this had jumped to $20,260,000, but in ,those days no Ottawa Government ' dreamed Canadians would one day pay more than a billion dollars a year in taxation.

Toronto and Montreal, as jjjeatest centres of population, are the greatest contributors to the national treasury. Together they contribute about half the Dominion total. During the first 10 months of the fiscal year 1943-44 Toronto paid $335,500,000 and Monttreal $376,250,000. (These figures include both personal and corporation taxes.) More Toronto people pay taxes than those in Montreal. Montreal’s greater total is accounted for by the fact that more companies with Dominion charters have head offices there and pay taxes in that district.

How does the department get its money and check on returns? In the case of a wage earner it’s easy. His employer reports to Ottawa the total wages paid and the amount deducted at the source. The employee’s debt of the balance is indisputable. More difficult, but not too difficult, Is the case of the self-employed person—the small merchant or purveyor of petty services. Before the war he may never have paid income tax; may never have filed a return. How to check him? There are many ways. I

For one thing, lists of income taxpayers are checked against city directories, telephone books, municipal tax records, provincial license records and what not. They’re compared with Unemployment Insurance returns, with national registration, with records of the Foreign Exchange Control Board. If any one of these sources disclose that Joe Doaks owns, say, a store or valet shop and hasn’t filed an income tax return, department inspectors go around and find out why. If Joe Doaks has filed a return which indicates a suspiciously low income inspectors go around anyway. They check his books and his bank account against the return he filed.

Maybe he won’t have any books or maybe they’ll be so badly kept as to give little information. If the inspectors suspect their man is paying a lower tax than he should, they can, under the law, make an arbitrary assessment of his income and charge him tax upon that. The Income War Tax Act leaves it to the Minister’s discretion in such cases, to determine the taxpayer’s income. If the taxpayer thinks he’s unfairly treated he can go to court but no court ruling has yet placed any limitation on the Minister’s discretionary power.

You may think it is easy for a professional man—a doctor, lawyer or dentist—to evade full taxation. Such is not the case. His books are open to audit at all times and for the sake of his professional standing he wants no suspicions aroused in the public or official mind about the accuracy of his bookkeeping. Should he fake his books there are ways of discovering the fraud and this usually means catastrophe for him.

Tax officials believe their system will get defaulters sooner or later—not by brilliant detective work or sinister mind reading, but just by patient plodding. All this, of course, takes time, but the Income Tax Division isn’t worried. It has plenty of time—the rest of your life and then some. If at any time you’ve underpaid them they can and do charge you interest on the amount from the due date. When a taxpayer gets too far behind the Government can step in and seize his whole income. It doesn’t happen often—but it can happen. Just how many delinquents there are in Canada is an official secret, but the number is not high and is being steadily reduced.

Of course, some taxpayers pay the Government too much. If this happens the taxpayer gets a refund, usually within a year, but he gets no interest on what he overpays.

Consideration Shown

Although the income tax mills grind exceeding sure, they aren’t operated blindly or without regard for humanitarian considerations. Every precaution is taken by the Income Tax Division when collecting back debts to see that ample warning is given, allowance made for genuinely necessitous cases, and needless harshness avoided. For instance, prosecutions for tax delinquency are never undertaken at Christmas. They’re allowed to run over to January before the “final warning” goes out. This is the last prelude to court action. An effort is made to have this and other correspondence as plain, decent and courteous as possible.

Sometimes, however, green hands in the Income Tax Division foil these good intentions. On one occasion a new legal agent in one district brought two men into court on Christmas Eve. Accused of failing to file a return they were fined $25; couldn’t pay and had to spend Christmas in jail.

Ottawa headquarters was furious. A

stinging rebuke was sent the legal Î agent and orders issued for the immediate release of the men. The chastened j agent saw the orders carried out and ¡ then concluded his report to the department with: “Don’t get your

shirttail in a knot. Those fellows had a swell time on Christmas. They had a fine turkey dinner and spent the rest of the day playing pinochle with the turnkey.”

In another case proceedings were taken to attach the salary of a man who hadn't paid his tax. He came to headquarters. “Don’t do it,” he said. “I’m desperate—my only child died last night. I’ve not a cent in the world and I’m trying to borrow money for the funeral. Give me some more time.”

They called his employer, confirmed the story and called off the attachment for four months. By that time the debt had been paid.

Collection procedure is based not upon the amount of the debt but on what the delinquent is able to pay. For instance, there was a broker in the 1930’s who had a pretty colossal income one year but went broke the next. His income tax debt ran into thousands of dollars and was still unpaid when war broke out and he went into the Army. He’s a major now and the tax debt is being deducted from his pay at $50 a month. Actually this is only a “token payment,” which wouldn’t retire the total amount for years. But in the judgment of the Income Tax Division it’s as much as a major can pay, so it’s all they’re getting.

Whenever the public will co-operate, income tax officials claim they’ll get co-operation in return. But the department can be bitter about those who won’t co-operate. They recall, for example, the prosecution of the man who was killed at Dieppe. The newspapers made quite a thing of it at the time-—prosecution begun against a tax delinquent and his black-robed widow who came to court to sob that her husband had fallen on the Dieppe beach and why couldn’t they let him rest in peace?

Records showed the first notice had been sent to this particular delinquent eight months before Dieppe. No answer. Another notice went to his address by registered mail. No answer.

A personal letter followed. No answer. Dieppe was over by the time the Income Tax Division collections machinery reached the point of the “final warning.” When this was also unanswered, prosecution was set afoot.

A reply to any of these communications, stating that the man had enlisted for active service, would have stopped the whole thing.

Just to complete the complication this man had filed his income tax return describing himself as a clerk. This was correct, but the Dieppe casualty list, as published, misspelled his name slightly and described him as a policeman. “How,” say the income tax people plaintively, “were we supposed to know it was the same guy?”-

Sometimes the spelling of ñamas causes trouble—even when there Is every intention to co-operate. This is particularly true in the case of the foreign-born, many of whom don’t ! know how to spell their own names in English. The income tax people have straightened out this trouble in recent years by an arrangement with major employers. By this agreement every j employee’s return carries not only his ; name but his cheque number on the | company payroll.

Vast majority of difficulties and hitchas, however, never get past district income tax inspectors. Ottawa j hears only of the major cases or, j alternatively, of those where the

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taxpayer writes to the Government direct. Ottawa officials, perhaps, never heard of the strange doings of one man who walked into the Toronto office and asked for his forms. He looked wealthy and wanted, it seemed, to pay taxes on all manner of income —corporation, personal, and income from a foreign source. The assessors gave him all the advisory literature available—two pounds of it. When he returned a few days later and a check on his income was made, assessors discovered he had not had a taxable income for 10 years, that he lived with his son and that his only source of income was an insignificant rental from a small property he owned.

Then there was the letter recently enquiring about allowable deductions. The punch line read: “I am a farmer and I recently bot a female dog and had her spayed; is this deductible as part of expenses?”

And there are those people who believe all taxation is a sin. They actually try to claim exemption as a conscientious objector might claim exemption from military service. One such individual in the Toronto office was told that sin or no sin he had to pay up. He was adamant. He wouldn’t pay.

“You are all godless fools!” he shouted at the assessors.

They expect him back, though, on April 30.