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1. HOST YOUR WEBSITE IN THE USA Did you realize that if you obtained hosting for your website in the USA that you won't get charged GST. That gives you a 5% savings on your annual web hosting bill. 5% may not seem like a lot but if you remember that its in YOUR pocket instead of somebody else's then it starts to make sense. When I first noted this point the C$ was strong and now has dropped by 20% so include the exchange rate in your calculations to determine which side of the border to host your site. And you can always host it another country too. In other words you can operate like a multi-national choosing the most advantageous location for cost and taxes.
2. BE COMPLETELY HONEST ON YOUR TAX RETURN Revenue Canada has a policy of doing several years on an tax audit and they are hoping to catch you and charge you penalties and back taxes and interest. In fact they hope to charge you ten times the actual cost of the audit as a rule of thumb. There is a very easy counter to this and that is be completely honest on your tax return. It will be harder for them to catch you on something you didn't do -although they will try anyway and you will potentially save thousands of dollars.
3. DO YOUR OWN REPAIRS When you pay somebody to do repairs for you it costs you an additional 5% for GST and approx 7% for PST. When you do the repairs yourself you save 12% So your own labour carries a very significant tax savings.
4. BUILD YOUR OWN STUFF When you build your own stuff you save 12% in taxes from paying somebody else to build it for you. When you are building something like a deck for your back yard the taxes saved could exceed $250 or more.
5. START YOUR TAX PLANNING AT THE BEGINNING OF THE TAX YEAR At the end of the accounting period its too late to do tax planning. Talk to your Accountant before the year starts to see how you can organize your affairs and investments to minimize your taxes.
6. TAKE YOUR OVERTIME IN TIME OFF NOT MONEY This one you need to think about a bit before you decide if its for you. Sometimes an employer will offer you overtime in money or time off. If you take the money it is taxable. If you take the time off its not. Now of course if you take the time off you do not take home the extra cash. But you do take home extra days off. Now think about it. It may be to your advantage to take the time off instead of the money. Not only do you need to pay tax on the money but occasionally it will also put you into a higher tax bracket and you pay even more taxes.
7. TAKE EARLY RETIREMENT When you retire early you earn less money so pay less taxes. I retired at age 54 and as a result have paid thousands of dollars less taxes per year simply because I haven't been earning as much as when I was employed. When I was paying taxes I was working for my silent partner the government because time is money. Each day of the year while employed I worked a couple of hours for them just for the payroll taxes.
8. HAVE A CHEAP FUNERAL I know this is a bit morbid but lets face it we all are going to be faced with funeral costs because we are all going to die. You pay GST on your funerals. So for every $1000 less you pay for your funeral you quite legally avoid $50 worth of taxes. It might be your final gesture in the war of tax avoidance. I suppose you could donate your body to science and avoid the funeral taxes entirely but who wants to end up in a jar in some medical student anatomy lab. NOT! Although perhaps if your middle finger was in one jar....hmmmm.
9. HAVE AN ANNUAL GARAGE SALE If you have an annual garage sale you can sell your stuff tax free and not only get some of your capital back but you can save the taxes too.
10 KEEP YOUR CAR FOR 20 YEARS If you traded in your car every five years your tax bill would be approximately equal to $15,000 to$20,000 or more depending on what type of car it was. If you keep your car and maintain it instead of trading every five years that money goes into YOUR pocket. Or better still buy a bike and save thousands in taxes!
11. CHANGE YOUR LIFESTYLE This may seem a bit harsh but most of the cost for booze, cigarettes and gasoline is ....tax. So don't drink or make your own. Stop smoking it causes cancer anyway and bike and walk more. Surprisingly you will avoid paying thousands of dollars of taxes every year AND its perfectly legal AND its better for your body! And gambling in Canada is a huge silent tax that you can avoid just by not doing it. You won't win the jackpot anyway so why pay all that money for tickets with after tax revenue only to loose. In fact your chances of wining the lotto are about one in 14 million and if you purchased a ticket every week for 269,000 years you might expect to win once. Average Canadians are now spending several hundred dollars a year on government sponsored gambling. Don't participate in their rip off scheme and save the money for yourself.
12. Use an Accountant or Tax Lawyer Accountants and Tax Lawyers are expensive however there is a general understanding that works in almost all cases that the fees they charge will be less than what you will pay if you don't use their services. There are several reasons for this but one that the taxpayer is not aware of is that Revenue Canada will not negotiate directly with the taxpayer but they will negotiate with a tax accountant or lawyer. This is their policy. This is grossly unfair but that is how the game is played so deal with it.
13. Always think tax first not last. Most people go out and do a deal and look after the tax implications when it is time to file. Big mistake. Think about the tax implications first before you do the deal. Usually it is possible to structure it differently so that everything is still legal but your tax exposure is much less. Go and talk to your accountant. Sometimes they will even give you some free advice over the phone but even if you need to pay for it you normally save that and much more on your taxes anyway.
14. Remember Revenue Canada is not your friend. Revenue Canada auditors deal with people all the time -that is their job. But just because they may be friendly does not mean they are your friends. They are searching out information to strengthen their audit file against you. They usually will not place items in the file that helps your case. Is this fair? Absolutely not. That's why you need to refer them to your Accountant who will speak their language and look out for your best interests. It's probably fair to say that the Auditor regards you as the enemy. As a revenue source. They can smile and be polite but they are not your friend. Over the years there have been horrible examples of revenue canada auditors who have forced taxpayers into bankruptcy and actions which have resulted in broken homes and even suicides. Check it out on google there are lots of stories there. Many times taxpayers are embarrassed and refuse to talk to friends about their encounters with the tax man. I think it is fair to say the average experienced small business person has a simmering hatred of the taxman and when you get them together there are lots of terrible stories that are exchanged. When you do talk to the tax man be totally business like. Reply to the questions asked and don't volunteer additional information but better still have your Accountant talk to them instead. Don't get emotional there is no point to it and it will go down in their notes anyway as part of your file. Is you ask around you will find that this point is really good information. Good luck!
Canadians are one of the most overtaxed people on the face of the planet (Earth). We have visible and hidden taxes and fees for services which are in effect even more taxes. I have heard people in the know comment that HALF of the cost of a new home is actually various levels of taxes. We pay taxes to earn an income and then when we attempt to spend that after tax income we pay more taxes on the item. Alcohol and gasoline contain significant amounts of taxes and the higher the prices go the more taxes we pay.
Hey what's that clanging ringing siren type noise????Why its the going off! Canadians are soft in the head when it comes to taxes. Abysmal in math most Canadians are incapable of determining how much taxes they actually pay and we have this annoying Canadian habit of adapting to a problem rather than solving it so the situation has gotten progressively worse over the years. We also have thousands of special interest groups who want to stick their snouts into the taxpayer's trough so will the situation ever change? Nope!
If you apply some of the te11 rules above you will save thousands on your taxes and it will be all legal Say "Thanks Ron"
Update March 28/08 I had a reader ask me to explain point #6 Take Your Overtime in Time Off not Money. Ok here is how it works. Say you worked at the Amalgamated Wiget Factory one day for ten hours. After eight hours you get overtime at the rate of time and a half. Lets say your base rate is $10 an hour. You receive $80 before deductions for your first eight hours and now you have a choice on the other 2 hours. If you take the money its another 3 hours pay or $30 before deductions. If you take the time off you can take an early quit the next day and take 3 hours off and still be paid as if you were there.
So there are a choice of benefits here for those two hours of worked overtime. That is you can take the $30 before taxes or you can take 3 hours off. If you take the three hours off your employer will simply pretend that you are at your job at your regular hourly rate and pay you for those hours although you are actually out fishing or otherwise enjoying your life. When you look at the tax impact you pay additional taxes on the cash if you take it or you pay no additional taxes on the time off.
As mentioned previously you need to think it over. In some cases you need the money and so would take the money and pay the additional taxes. In other cases you need the time off more than the money so can take it and also save on your taxes.
Its a win- win- loose situation. You win. Your employer wins. The tax man looses. For two hours it doesn't make a big difference but when you get into the real world you are talking about millions of dollars of potential tax savings for the employees. You see revenue Canada hasn't figured out a way of collecting tax on this time in lieu benefit yet. And time off is most certainly a benefit -just ask any worker. It really makes sense when you need a long weekend or an extra day or two to make vacation flights work. Most employers are happy to allow you to build up a bank of hours that you can take off rather than pay you at the overtime rate.
Another potential advantage in taking time off over the money is that additional income can place you in a higher tax bracket. So in that case you could end up owing the tax man more money at the end of the year.
It is surprising how difficult people find this concept. I suspect its the old Canadians are bad in basic math problem rearing its ugly head again. I have mentioned this problem on other pages on this website with the concern that when it comes to math too many Canadians are too dumb to pound sand down a rat hole. And on that happy metaphor I recently saw a case of where an unlucky Canuck operating a propane powered gopher hole explosive device unfortunately burned down a farmers field and several houses so I guess we can include gopher holes with the rat hole example.
Tax Evasion is really a bad idea -don't go there!
Getting back to avoidance of unnecessary taxes you really need to work at in in Canada. All of our consumer items come with visible and hidden tax bills. Sure we see the GST and PST but you don't see the administration costs for the collection of those taxes, the layers of taxes paid to construct and deliver the product to you and even to the employment taxes you pay to earn your money. If you considered that the tax component of a lot of consumer items is around the 50% level you can see the enormity of the problem. Don't believe me? Go and visit a major big box consumer store down in the USA and compare values to the Canadian situation. Invariably the American consumer receives significantly better value that we do because there are fewer embedded taxes in their products. That's one reason why their new vehicle costs can be over ten thousand dollars LESS than the Canadian price. Makes you think?
A good cigar in the USA is twice the price in Canada -go figure eh!
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LINKS
Taxtips.ca This is an excellent site from a retired couple from Cedar BC. Lots of useful information and calculators. Well done!
About.com A good collection of useful tax information
Sympatico Finance six tax changes that will save you money
The Fraser Institute article on flat tax. How long have people been talking about a flat tax in Canada. Yes it greatly simplify life but so many Accountants would be out of work they would revolt. Anyway its a good idea but the people will need to demand it.
Revenue Canada Convictions Revenue Canada is as close to the Gestapo as we will ever get in Canada. You can forget about the Charter of Rights and Freedoms and any pretext of fairness. Many small business people consider Revenue Canada to be their biggest challenge and danger in business. This page shows you what they will do to your reputation, finances and life when they catch you doing something wrong. They are a vindictive, cruel and merciless organization and have destroyed thousands of small businesses and hundreds of thousands of lives. Read over the convictions and form your own opinions. You may see your neighbor there. It is therefore absolutely crucial that you understand the distinction between tax avoidance and tax evasion and the need to simply declare your income. Being honest is your best defense. The reason that Revenue Canada advertises its convictions is to use it as a terror tactic to compel Canadians to follow the rules. You may think I am being a bit unfair here. Ask around and read the convictions site over and make up your own opinion....Good Luck!
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