One Comment About Taxation – The Anti-Year-End Tax Planning Checklist

 

At this time of year (as I wrote about in my book – Making Life Less Taxing), there is no shortage of “year-end tax planning tips” in news articles, social media posts and emails.  It’s like clockwork. From about November 1 to December 31, these articles magically appear.  And similar articles on “tax planning” will once again start appearing around mid-February of the following year when the April 30 personal tax filing deadlines approach.

While these articles are well-intentioned – and I certainly do not begrudge the authors for writing them – these “tax planning” articles frustrate me. Why?  Well, it’s simple.  Like most important things in life, tax planning shouldn’t occur just before the deadlines.  It needs to be much more proactive than that. Yes, I know that checklists can be an essential reminder to ensure you don’t forget things, but such checklists should not be a substitute for good overall planning. Unfortunately, many Canadians don’t approach it that way.  The November – December 31 and February 15 – April 30 “tax planning” articles condition people that this is the time to plan.  It’s not correct.

Let’s use a car as an analogy.  For most Canadians, a vehicle is a significant purchase item, including ongoing costs like insurance, fuel and repairs.  A routine maintenance schedule will preserve the value and use of the vehicle. The problem, of course, is that it can be expensive, and in this day of rising costs, often this gets put aside in favour of paying other bills.  Tax planning is like that.

For most, taxes are by far the largest annual expense Canadians pay.  The Fraser Institute, in a recent study, reports that the average Canadian family spends more of its annual income on taxes – 45.3% – than it does on basic necessities like food, clothing and shelter combined – 35.6%.  When one absorbs that for even a minute, it becomes evident that this type of expense deserves ongoing planning and not simply twice yearly when one is bumping up against filing or other deadlines.

So, with the above in mind, below is my greatly simplified Anti-Year End Tax Planning Checklist:

1. Figure out how much in overall taxes (including income tax, GST / HST net of credits, carbon tax net of credits, property taxes and other taxes) you pay each year. Yes, some of this will require estimates, but try to make an attempt.
2. Once computed, has this opened your eyes somewhat? What percentage of your overall family income does tax payments represent?  If you’re comfortable with the result or if it hasn’t surprised you, maybe there’s nothing further for you to do.  If your eyes are now open, then start thinking about how you might be able to reduce your tax exposure.
3. Albert Einstein is often quoted as saying “the hardest thing in the world to understand is the income tax.” I think Albert was correct.  And if you agree after trying to figure out how to estimate and mitigate some of your taxes, then consider hiring a tax professional to help you figure it out.  Most Canadians’ tax situations are fairly straightforward.  But if you’re entering into more tax complexity, then it would likely be worth the investment to hire a professional to help you understand.
4. Lastly, and this is important, don’t leave your “planning” until the two times a year when the articles come out.

And there you have it, my Anti-Year End Tax Planning Checklist.  Tax planning is a year-round exercise.  As explained above, the biggest expenditure in the average Canadian family is tax.  Give it the attention and year-round attention it deserves.  You will benefit from a good understanding and education of how much you pay.  Better yet, just like your car purchase, you can assess whether you’re getting good value for your money. It’s my opinion that Canadians are not getting good value.

 

One Comment About Leadership – The Importance of Peer-to-Peer Learning

 

So you’re now in a position of leadership. You’ve got that promotion, and now you’re in charge!  Or you started a business, and now you’re hiring employees.  How do you learn how to be a better leader?  Or an entrepreneur?  They taught you those skills in high school or post-secondary schooling….right??  Nope.  Not even close.  I’ve spilled ink in a previous newsletter that I believe basic financial training should be mandatory for grades 1-12 for all Canadian school students.  I also think there should be mandatory training in leadership and entrepreneurship. These life skills are critically important for many Canadians who are promoted to leadership positions or want to start a business.

So, how do you obtain such knowledge and / or training?  Good question.  Besides the “School of Hard Knocks” (which is a good school), there is a hodgepodge of “experts” who offer tips and / or courses.  While some can be good, I have found that “peer-to-peer” learning groups provide invaluable insight, education and training.  The premise of such groups is simple:  learn from your peers.  There are a variety of credible groups – more on this below.

Almost 30 years ago, I started my accounting practice.  I naively thought I knew what it took to be a leader and an entrepreneur.  And boy, was I wrong.  After many mistakes and three years into it, I was lamenting to a friend of mine – Bryce Medd – about the trials and travails of my new practice.  Immediately, he suggested to me that I should consider peer-to-peer learning.  He recommended a group founded by Dan Sullivan and Babs Smith called The Strategic Coach.  It was expensive, especially for a starving new accountant!  But it looked interesting, and I took the plunge!  More than 25 years later, it was one of the best decisions I have ever made in my entrepreneurial career.  Armed with tools and peer advice, it helped shape my overall life goals and the progress I made toward those goals.  Some of the advice I have received from my peers has been eye-opening, with no shortage of wisdom and experience associated with such advice.

There are many credible peer-to-peer coaching groups.  They all differ in cost, structure, required commitment and member characteristics.  Recently, after exploring options and expressing my desire to be a coach in a peer-to-peer organization, I landed on an amazing group – MacKay CEO Forums – and officially launched my first peer group as a Chair earlier this year.  It’s one thing to be a member of such a group, but it’s another set of experiences to be a Chair to facilitate discussion.  I’m loving it!  And I continue to learn!  If you’re interested in learning more or want to chat about possibly joining my existing group or a new group that I’ll be starting soon, please send me a note.

In the meantime, leaders and entrepreneurs, consider doing yourself a huge favour and explore the merits of peer-to-peer learning. I just released a video on this topic and encourage you to watch it here.

 

One Comment About Economics and Politics – Windfall Taxes on Canadian Oil and Gas Companies

 

During my career, I have been continually shocked by the lack of depth that some of our country’s politicians have regarding taxation and economic policy.  For example, a couple of years ago, windfall taxes were re-introduced into Canada (we have had windfall taxes before, and I’ve written about it here) and placed on the shoulders of Canada’s financial institutions since it was perceived that they were making too much profits on the backs of Canadians. Cloaked under the guise of a cutesy but offensive marketing slogan – the “Canada Recovery Dividend” – the “dividend” was nothing but a windfall tax imposed on financial institutions on profits over a certain hurdle rate.  There are many policy problems with windfall taxes, including picking and choosing industries that are subject to such taxes, the rate of the tax, the term, etc.  However, what many politicians and the average Canadian fail to consider is that windfall taxes, if imposed, will simply be recovered by the target companies in some form or fashion by passing along the extra costs to consumers.  When that is considered, does Canada benefit overall from such a poor policy?  The answer is obviously no.

A recent report published by Canada’s Parliamentary Budget Officer (PBO) shows that windfall taxes are still the policy of choice for many left-leaning parties. The report publishes its findings after being asked by a federal Green Party member to consider what a windfall tax on Canadian oil and gas companies would add to Canada’s tax revenues.  The proposed tax – cloaked under the guise of the ridiculous “Canada Recovery Dividend” marketing slogan again – was suggested to be 15% of profits above $1B.  The PBO estimated it would bring in $4.2B over five years.  So, if implemented, would Canada’s oil and gas companies simply absorb such costs – assuming they are indeed accurate – and not pass them along to the consumer?  Absolutely not.  It would be the average Canadian who would pay the price by increased costs at the pump or to heat their homes.

Windfall taxes might be good politics that pander to a political party’s voter base.  But they are seriously flawed from an economic and taxation policy perspective. They must be eliminated as a legitimate tool when governments build tax and economic policies that work for all.

 

Bonus Comment – Quote From Benjamin Franklin – One of the Founding Fathers of the United States  – About Learning

 

“Tell me and I forget. Teach me and I remember. Involve me and I learn.”

 

Totally agree!

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