LEFT: Sumerian tablet which records payment of the tax called “burden,” circa 2500 B.C.
RIGHT: Pharaohs, like the one shown here on the door jamb of the Palace of Merenptah (1236-1223 B.C.), were powerful rulers who could, and did, collect taxes as they saw fit.
Taxation goes back to ancient times. Even in the barter system taxes were collected in the form of produce, merchandise or property. In those days, it was the hardest working sector of society, i.e. the peasants that were the highest and most regularly taxed. Many revolutions and wars were started because of unfair taxation practices. “No taxation without representation,” was the slogan that led the Thirteen American Colonies to break away from the British monarchy. One thing that has stood the test of time and that is taxes are necessary. We are still in search of a tax system that is fair and just to society. Too often we see blatant waste of taxpayer’s money or bear witness to scandals of corruption and fraud.
As much as we all dislike paying taxes, there is really no getting around them. Taxes are the main source of government revenues. Taxes pay for, public education, roads, social services, road signs, and the wages of millions of government employees. Once we have a government, taxation is a necessity.
You are legally required to file your income tax. In Canada Section 238 of the Income Tax Act lays out the penalties for failing to file a tax return. The offender can be fined anywhere between $1,000 and $25,000 and up to one year in prison.
It is also illegal to evade taxation. If you misrepresent your financial status such as declaring less income or overstating deductions in order to pay less tax you can be subject to Section 239 of the Income Tax Act. Section 239, states those who are convicted of tax evasion may have to pay anywhere from half to double the amount that they were trying to save by falsifying their taxes. In addition to paying a fine, offenders may face up to two years in prison. Ignorance is never an acceptable defence, so be sure that you know what the ramifications are of not filing or not being diligent with your tax preparation.
Now no one likes having to pay a large tax bill, but have you ever stopped to think about what this really means? If we take a moment to reconsider the way we see this “problem” we can at least get some emotional comfort that things are just peachy! Your tax bill is really an indication of your success. Yes, I rather look at the glass half full rather than a half empty! But seriously, you can’t pay taxes on earnings you don’t have. If you are not paying taxes it means either you are very efficient in maximizing your tax strategies or you are not earning enough. In the first case you are to be congratulated. In the second case, there is cause for concern. If you are not earning enough to have a tax problem you may want to consider looking for a new job or upgrading your training to facilitate moving into a new job.
Here is a reminder of some tax planning tips to ensure you legally minimize your tax bill:
- Max out (up to your limit) your Registered Retirement Savings Plan (RRSP) contribution and do it early in the year
- Contribute up to $2500 for the year to your child’s Registered Education savings Plan (RESP) this will allow you to earn the 20% government grant for your child’s education fund
- Take advantage of your Tax Free Savings Account (TFSA), contribute the maximum amount of $5,500 for tax-sheltered growth
- Take advantage of the new Family Tax Credit (FTC) and
- Take advantage of splitting pension income with your spouse
- If you have a spouse, combine your charitable donations and claim them on the higher-income spouse’s return
- Ensure that your will is updated to ensure that you minimize taxes on death
This tax season, let’s change how we view taxes and realize that if we are stuck with them, then we might as well make the best of them. We can do so by first recognizing it’s a “good problem” to have. Also, we need to ensure that we have good tax planning strategies and that we are making enough income to need those strategies.