Canadian Income Tax Myths to Avoid in 2017
Taxation is complicated, so much so that Canadian judges have described it using words such as “complex” and “convoluted”, as well as the phrase “ambiguous and unclear”. If judges have such difficulty coming to grips with Canada’s tax laws, what chance does the average taxpayer stand?
Unfortunately, there are many tax-myths about taxation that lead taxpayers astray. These tax myths affect how people report their taxes, the financial decisions they make, and the traps they are lead into by unscrupulous people. This article covers only some of these tax myths – from the benign to the criminal.
"If I move into a higher tax bracket, I’ll lose more money to taxes" – Tax brackets are marginal, meaning that the progressively higher rates only apply to each dollar above and not below the cut-0ff (anything below the cut-off is taxed at the lower rate);
"Income taxes are unconstitutional" – this claim is as old as income taxation and is very much untrue. There is a difference in taxing power between provincial and federal governments, such that provinces cannot impose indirect taxes, but income taxation is quite constitutional to both levels of government;
"There are secret ways the rich pay little or no tax" – There are no esoteric or secret ways by which the rich pay no tax or little tax. The rules, as designed, simply benefit the rich over the poor, and those earning business and investment income over those earning employment income; and
"You are both a natural and a legal person, and the natural person doesn’t have to pay taxes" – These and other varieties of the free-man-on-the-land argument are convincing (for some reason) and false. Many otherwise honest people have been lead to financial ruin by listening to those who claim that asserting yourself as a natural person will prevent the government from being able to tax you.
Other common myths include not having to file a tax return if you earn less than the basic exemption (you do have to file), that if you work abroad you don’t have to file (you do if you are a Canadian tax resident), or that mortgage interest is tax deductible (only interest paid on money directly used to earn income is deductible). There are many more tax myths that either cost taxpayers money or make them subject to interest, penalties, and even criminal prosecution. Don’t trust people who offer you advice that seems too good to be true or limited to some who are “in-the-know”. Get the help of an experienced and licensed tax accountant and get taxes right.
Talk to FarisCPA today and get peace of mind, either as a second opinion, as part of tax planning, when challenging the CRA or being audited by them, and when filing your tax returns.
NOTE: Articles are for general information only and do not constitute tax advice nor can they be relied upon.