Phantasmix (aka Re: money)

We watched “Stranger Than Fiction” a few weeks ago, I really liked it and keep coming back to it. I give it 10/10 and will buy it on DVD. End of movie review.

Here’s a sort of funny dialog from “Stranger Than Fiction” that resonated with me:

Harold Crick: It says, in the file, that you only paid part of your taxes for last year.
Ana Pascal: That’s right.
Harold Crick: Looks like only 78 percent.
Ana Pascal: Yep.
Harold Crick: So you did it on purpose?
Ana Pascal: Yep.
Harold Crick: So you must’ve been expecting an audit.
Ana Pascal: Um, I was expecting a fine, or a sharp reprimand.
Harold Crick: A reprimand? This isn’t boarding school, Miss Pascal. You stole from the government.
Ana Pascal: No I didn’t steal from the government. I just didn’t pay you *entirely*.
Harold Crick: Miss Pascal, you can’t just not pay your taxes.
Ana Pascal: Yes, I can.
Harold Crick: You can if you want to get audited.
Ana Pascal: Only if I recognize your right to audit me, Mr. Crick.
Harold Crick: Miss Pascal, I’m right here auditing you.
Ana Pascal: Listen, I’m a big supporter of fixing potholes and erecting swing sets and building shelters. I am *more* than happy to pay those taxes. I’m just not such a big fan of the percentage that the government uses for national defense, corporate bailouts, and campaign discretionary funds. So, I didn’t pay those taxes. I think I sent a letter to that effect with my return.
Harold Crick: Would it be the letter that begins “Dear Imperialist Swine”?

I find myself thinking more and more that I don’t want to pay taxes, or rather not “entirely” As most people who give it a thought, I at least partially disagree with how the tax money is spent.

Here’s where the Canadian tax dollar goes

Category descriptions in the chart are kind of vague, but they’re explained in detail here: http://www.fin.gc.ca/TaxDollar/text/html/pamphlet_e.html

My web search skills may suck but it was a lot harder to find a clear picture of where the American money goes. Canadian government websites seem to be more straight-forward, like they have less to hide

Here’s where the American tax dollar goes

Note: I put this chart together, therefore the way it’s colored is obviously biased. The big bright blocks comprise 75% of the budget.

The budget should be a reflection of the people’s priorities, whether that’s true or not is a separate question. The major differences are in Defense and Health care allocations. Even if the Healthcare diff. may be due to how federal and state/provincial governments handle things (maybe individual provinces take on more than the states do, for example), but the Defense is clearly a federal expense.

Canadians get offended when people say “they’re just like Americans”, and rightly so, at least our budget is a reflection of the peaceful nation that we are. With this, I end my very much delayed bash of the American-Iraqi war.

Tax spending is a topic for another time, when I start breaking my New Year’s resolutions and go back to my complaining self.

Yes, there is such a thing as good tax news!

In addition to lowering GST rate from 6% to 5%, effective January 1, 2008:

The GST/HST threshold for quarterly instalment payments will be increased from $1,500 to $3,000. If you are an annual filer whose net tax for a fiscal year is less than $3,000, you will not need to make quarterly instalment payments throughout the next fiscal year. - Revenue Canada

Don’t let the word “increased” scare you. This is actually good news! Our GST payable (after deductions) is typically between $3-5K, which easily exceeded the $1,500 threshold. We were forced to either do one big prepayment before filing the GST return so the tax payable would be under $1,500, or suffer through the quarterly instalment payments.

Instalments are not a problem, really, but they are a hassle. And if you’re late with one of the instalments, you’ll be penalized. You’re potentially setting yourself up for 3 penalty occasions a year. I always opted for the prepayment option, which is a much smaller hassle: just 1 extra check and 1 extra form to fill out.

This year we have a bunch more ITC’s (input tax credits), so the GST payable may very well be right under the $3,000 threshold.

In conclusion, while this change doesn’t directly mean tax savings, this little change has the potential to make lives a bit easier.

Photo credit: Andrew Rubtsov (AR Stock)

If you’re running a home-based business and eat your lunch at home most of the time, you may neglect writing off meals thinking “it’s just groceries we’d be buying anyway”. You should keep all your grocery/dining out receipts for the year, and then add a pro-rated amount of meals to your tax return. I didn’t do it in the past either, but for 2007 tax year I’ll be sure to include 1/3 of our grocery bills to our expenses. My 1/3 number is based on “breakfast, lunch and dinner”. Then of course that 1/3 will be further reduced by 50% because you can only write off half the meals (on a Canadian return, anyway).

expired

There’s a lot of new small business tax rules this year, so I can’t use my QuickTax from last year to estimate how much we should buy before the year runs out. I noticed that tax software never goes on sale so I might as well buy it now and do a rough calculation that’s more or less correct according to the new laws.

Interesting data from the Organization for Economic Cooperation and Development as posted in the New York Times:

What’s even more interesting is the percentage-point change. Canadian, German, Dutch and British tax rates have basically remained the same since 1975. Seems to me there must be a relation to the stability of the economy somehow.

I’m not sure how “Tax revenue as a percentage of G.D.P.” translates into actual average tax rate, though. If Canada’s tax revenue is 33.4% of G.D.P. - is this percentage the average tax rate Canadian households pay?

Sources:
http://www.oecd.org/document/16/0,3343,en_2649_201185_39495248_1_1_1_1,00.html
http://www.oecd.org/document/16/0,3343,en_2649_201185_39495248_1_1_1_1,00.html

I’m currently reading “The Only Investment Guide You’ll Ever Need” by Andrew Tobias (great book, by the way - useful AND fun), and he says the real income tax rate is not your % bracket, typically 21.5% or 37% for example.

Since the system is graduated, you don’t pay any tax at all on the first few dollars, but you pay the highest percentage on the last few dollars. I used to calculate the tax payable in relationship to the full income - like most people. Usually it doesn’t look that bad, thanks to the deductions we pay under 15% of gross earnings (plus, of course the GST we collect from the clients and 14% tax we pay on purchases at the store. When you add these up, you end up with a much higher number).

What Andrew Tobias suggests is to see your true income tax rate, after you make all the calculations for the year, add on another $1,000 of income and see by how much your tax bill changes - the extra payable amount on that additional $1,000 will show you your real tax bracket.

I opened up our QuickTax file and added $1,000 to my income alone. It did not put me into a different federal or provincial tax bracket, yet it added $420 and change to my tax bill! 42% is my tax rate for every additional $1 until I get to the next tax bracket, and then it’ll increase some more. 1 penny saved becomes almost 2 pennies earned