Canadian Tax Myths

There are many tax myths out there, and most are designed to defraud you, or are based in misinformation. Today we will take a look at some of those myths, and why you should avoid them.

Myth #1

Taxes are unconstitutional as ruled by the Supreme Court in 1950.

The Supreme Court Ruling from 1950 is based on a decision made about whether or not the federal and provincial government could delegate authority to each other on some issues of labour and taxation. It has nothing to do with taxes being unconstitutional. Sections 91 and 92 of the Constitution clearly explain the right of the government to raise money at the federal and provincial levels through taxation. While you can ask the court to declare taxes as unconstitutional, no court has yet to do so.

Myth #2

The income tax system is voluntary so it cannot be enforced

Some taxes are voluntary (like collecting GST before your company earns the required threshold to do so, or paying IFTA in Alberta) but income tax? That is required. The Income Tax Act states that you must pay your taxes, and the government has the power to hand out fines and penalties unless you follow the law.

Myth #3

With a little creative accounting, you can make tax-free withdrawals from your RRSP

If you have a registered savings plan, you can contribute a certain amount of money tax free per year. Any money withdrawn, either early or when the RRSP is converted to a RRIF (registered retirement income fund), means you are taxed on that money. Money withdrawn from an RRSP is counted as income. If anyone tells you otherwise, or has a great “scheme” to help you get tax free money from your RRSP, run away fast. If someone is offering to loan you money tax/interest free against your RRSP, run away even faster. These common scams target your retirement savings, and you could wind up in legal trouble while losing all of your funds.

Myth #4

CRA is intent on wringing every hard earned dollar from your pocket while being unreasonable if you can’t pay on time.

CRA is a very large agency and that causes problems with reaching agents on time, and yes, CRA has been very guilty in the past about giving wrong advice and blocking calls to meet volume targets. However, the “bad advice” scandal is now two years old. CRA has worked hard to improve its customer service and response times.

CRA is not out to get you. They get very firm and send threatening letters if you avoid them, not if you call first and work out a payment plan. If you cannot pay your taxes on time, get in touch with them quickly. If you wind up in collections, your situation is much more difficult for them – and you – to deal with.

The key to paying your taxes in full and on time is being organized and saving throughout the year, especially if you are a small business owner or do not have your taxes automatically deducted.

We can help. Contact us today for your tax and accounting needs.

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