O O Ø O O O O
Math Tax
I’m giving up on tax planning for Lent.
I don’t really have a choice. Today is Fat Tuesday. Tomorrow is the RRSP deadline. Anything I do after that is next year’s problem, a fact that irritates me to no end.
The irritant, of course, is that today is also the day by which my employers and investment vehicles must mail me my tax receipts. That means they won’t arrive by tomorrow. That means I’m not in possession of all the facts I need to play the game properly. And the game is important to me, because (though it may not be apparent from my Halo skills) I enjoy a good game.
Of course, I’m talking about the tax game—the one where the government tries to take all our money, and we have to figure out how to keep some of it. It’s not easy. There are many rules. Some of them you might even know. Most of them, unfortunately, you probably don’t.
Here’s an example.
Say you happen to have a corporation, (don’t ask why—just follow along) and you, a director and shareholder, want to take some money out of it. Should it matter whether you take your money as salary, or dividend? Of course not. Income is income.
Except it’s not. As you’re no doubt aware (from your own playings of the game) employment income is taxed in brackets: the first $35,595 taxed at 15% (with 15% of the first $8,648 worth credited back to you later), the next $35,595 taxed at 22%, the subsequent $44,549 taxed at 26%, and anything above that taxed at 29%–All of this at the federal level, of course. Provincial taxes are a whole different bag of beads.
Dividends, on the other hand, are first grossed up by an extra 25%. This amount is then taxed at your marginal tax rate, though 13.33% of the grossed-up amount is later credited back to you (clearly, to avoid some of the double-taxation resulting from corporate taxes). But if you work all that out, your find that dividends are taxed at 2.08, 10.83, 15.83, and 19.58% (for each of the tax brackets) respectively.
So why didn’t they just say that?
It’s part of the game.
But Fat Tuesday is today. The RRSP deadline is tomorrow, and the little pieces of paper that will tell me if I did my math right will show up next week. A month after that, I’ll drag my shoebox, my math, and a moderate-sized cheque to my accountant, who will tell me how I got the rules wrong again, do the math over, and give me a new strategy to try out again next year.
And what about those poor folks who don’t want to play the game or pay an accountant?
Then the government keeps more of their money. They pay the math tax, just like the rule-making boobs intended.
Kjell Wooding
February 28, 2006
OOØOOOODCCXLV
March 7th, 2006 at 1:43 pm
I had a simple tax year again. My T4’s showed up Feb 28th. At 11pm I logged on to Intuit and started filing my tax return replete with my last year’s data appearing automagically. I pumped in all my numbers and saw my refund amout. I then filed online. If I needed more RRSP I could have gone online to ING DIRECT and transferred from my savings without leaving my chair. It’s been cool the last 2 years, but next Tax year when I start playing with stocks and if I buy a condo it won’t be that easy
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March 8th, 2006 at 5:06 pm
Simple?
Then you’re paying too much tax.
Where’s your home-based business?
Where are your holding companies?
How are you keeping the evil tax-man away from your savinsg interest?
And if you have a refund, you’re also losing, since you’re giving up an interest-free loan to the gubment. You should be striving for a small payment at tax time.
It’s only fun if you play, you know.