Taxes: A Penny Saved Is a Penny Earned.
Do you own a business or a substantial amount of real estate? Let’s start with a few simple propositions:
- You want to pay as little tax as possible both while you are an owner and then when you sell.
- Tax rules for Canada are set out in the incredibly complicated Income Tax Act.
- Sophisticated, conservative tax planning can reduce your tax substantially.
Let’s go through these propositions one at a time.
You’ve worked hard to build up your business in the oil patch, construction, as a professional corporation, or any other business. Perhaps you’ve acquired a portfolio of real estate properties. You are successful, and one of the major reasons is that you have consistently put in incredibly long hours over a lengthy period of time. You’ve worked hard, but are you working smart?
It goes without saying that you would like to keep as many of your hard-earned dollars as you possibly can. What was the point of working so hard potentially to the detriment of your personal and family life? Answer. You want to maximize the benefit of all those long, tough hours spent building up your successful business.
So how do you maximize the benefit of your sweat and toil over all those years? How do you keep as many of your hard-earned dollars as you possibly can? It all comes down to planning.
If you tax plan, you save tax.
You save the most tax with help from tax specialists.
Think about your business. Chances are, a large part of your success is because you picked great team members. Great team members are often specialists who take total responsibility for their part of the operation and run it extremely well. Successful business owners recognize they can’t do everything themselves, that they have to rely on their team. Tax specialists are lawyers and accountants who don’t do anything but tax related work. They won’t help you with a divorce or do your books. You already have other team members to help you with day-to-day legal and accounting matters. Do you have tax planning specialists on your team?
What about proposition number two? Is the Income Tax Act really that complicated? To answer this question let’s get some help from Prof. Vern Krishna CM, QC, FCGA. Vern was my classmate at law school and even then he was a tax genius. He took every tax course available and aced them all. His 40-year career has been all about tax and he is one of Canada’s top tax specialists.
In 2010, Prof. Krishna wrote an article about our Canadian tax system that really explains why you need tax specialists on your team. We’re going to quote liberally from Prof. Krishna’s compelling description of the monster that is the Income Tax Act and its demon spawn politely referred to as the Canada Revenue Agency (CRA).
“The Income Tax Act is the largest and most complicated statute in Canadian law. The sheer volume of legislation (expanded and amended annually), regulations, changing administrative practices, new treaties, and judicial decisions means that no single person can ever expect to fully understand the entire tax law in one lifetime. In less than one century, Canada has managed to grow a modest 12 page enactment (the first tax legislation) into a monolithic and incomprehensible, virtually illiterate statute” (2600 pages!).
This doesn’t sound good. Perhaps we can rely on our Canadian brothers at the CRA to help us out. They must really understand the tax legislation because, after all, that’s what they do every day.
Not so according to Prof. Krishna. “A law that is incomprehensible to citizens is also incapable of fair administration. There is absolutely no evidence to suggest that the Canada Revenue Agency has any better understanding of the law then do taxpayers. Indeed, quite the contrary. Few tax administrators actually read the statute; most rely slavishly on their own internal interpretive bulletins.”
And, if those tax administrators or ordinary citizens did read the Income Tax Act what would they find? Single sentences that are three pages long! Three pages of mind-numbing, dense legalese that is impossible to make sense of. What does that mean for you? Once more we turn to Prof. Vern Krishna. “Individuals who do not have even the remotest understanding of tax law must, under threat of civil and criminal (my emphasis) sanctions, comply with the fiction that everyone is presumed to know the law.”
It isn’t just Prof. Krishna who thinks the Income Tax Act is incomprehensible. Here is what the judge said in the legal case of J. F. Newton Limited et al. vs. Thorne Riddell et al., “It surpasses my imagination that anyone considers language such as this to be capable of an intelligent understanding, or that such language is thought to be capable of application to the events in real life, such as the sale of a business.”
All right, I think we’ve beaten this up enough. The point is that tax law is extremely complicated. Does that mean you have no opportunities to do appropriate tax planning that substantially reduce your tax? Absolutely not! There are many exciting, sophisticated tax planning techniques that fit completely within those complicated Income Tax Act rules.
Our tax specialists at RMLO Law LLP work with your existing lawyer and accountant to analyze your circumstances and produce the best plan possible. And we give you our written legal opinion that the plan will work within those complex Income Tax Act rules.
We’re not talking about saving a couple of thousand dollars. We don’t recommend a tax plan unless it saves you a whole bunch of money. So, it’s up to you. Create a tax plan to safely and conservatively maximize your hard-earned dollars, or give it to the taxman.
Don’t wait until taxes are due; start planning now! Contact me for more information or to set up a consultation.