One of my favourite Seinfeld episodes revolves around Jerry and Kramer in a heated exchange over Jerry’s broken stereo. It focuses on the fact that Kramer purposely broke the stereo to benefit from the $400 insurance policy he bought from the post office. The exchange goes like this:
Jerry – “So you’re going to make the post office pay for my new stereo”??
Kramer – “All these big companies, they write everything off!”
Jerry continues to ask Kramer questions and whether he even knows what a tax write-off is. It turns out Kramer has no clue how tax write-offs work, and neither does Jerry.
In Canada, everyone and their mother can file taxes using a free tax software. In fact, I highly encourage the regular employee with a few tax slips to do exactly this. As someone who has devoted his career to assisting Canadians and non-residents navigate through the complexities of Canadian tax system, I thrive to keep myself updated on tax legislation, including tax write-offs. I make it my mission to educate everyone around me how Canadian taxation and write-offs work and break it down in a language everyday people can comprehend.
I have found over a decade of personal and professional experience that the level of knowledge about taxation in the general population is rather shaky at most. All people care about are tax loopholes, and if they owe taxes on filing, their accountant probably was incompetent. I often meet people that brag about how much money they make, and what they do (or have been advised on how) to save money on taxes. There’s been a few instances where clients come to me after having purchased family cottages or investment properties inside a corporation. In those instances I often ponder whether it may make sense to burst their bubble by telling them they’d expose themselves to double or triple taxation.
There are ways to beat the taxman. Proper tax planning looks towards the horizon. People often may focus too much about whether they can claim a current tax deduction (write-off) as opposed to looking at their endgame and figuring out what their overall tax situation is. For a regular employee, there are very limited opportunities, but every opportunity matters. For a businessperson, there is a lot more flexibility to defer or save tax, but without proper understanding of their life objectives, a brick wall stands in the way. Some of my clients are surprised when they hear me say that RRSPs are a waste of time. It’s all about perspective and context.
Some accountants will tell you that they’re well versed in the tax laws, and that they make sure their clients pay only what they must – not a cent more. That’s a myth. Unfortunately, the average accountant has had very minimal tax training and very minimal skills in applying the ever-changing tax laws. Just ask them how often they dive in the Income Tax Act, and you may get a sense of whether their tax advice comes from Google or a mechanical entry in the tax software. If you are in a room with a few friends, and you know that one of you will be audited by Canada Revenue Agency (CRA), how comfortable are you that your filings have been clean, and you are far from the substantial penalties and compounding interest that CRA can impose on you. Better yet, how comfortable is your accountant? Hint: the onus is on the taxpayer, so make sure you’re prepared. My goal right now is to just put a pebble in your shoe to make you think about your own situation. And get ahead of the curvy taxman.
