Sunday, October 23, 2011

Avoid Taxes


As the saying goes there are only two things that are certain in life, death and taxes. We work approximately 3 months out of the year just to pay our taxes. When we work for a pay cheque the first person who usually gets paid is the government in the form of income tax, Canadian Pension Plan (CPP) and Employment Insurance (EI). Income tax accounts for about 20% of our deductions (can be more depending on your tax bracket), while the other 10% of our deductions comes in the form of CPP, EI and any other charges (union dues, professional dues, etc...).

At the end of a working year we may be left with less than 70% of our annual salary. In addition to these taxes on our income, we are taxed when we spend. Most goods and services are cost an additional 13% which is charged in the form of a harmonized sales tax (HST) in the province of Ontario.

With all these taxes and fees it's a wonder how anyone can get ahead. Are there any legal ways to avoid taxes? One excellent way is to plan out your purchases. The province of Ontario has acknowledged that there are things necessary to life and that these things cannot be taxed. Examples are shown below. Planning your purchases based on what can and cannot be taxed can give you 13% more purchasing power with your money by avoiding HST.

Here is a list of non taxable goods an services from the Ontario Ministry of Finance website (http://www.rev.gov.on.ca/en/taxtips/rst/01.html):


Common goods that are not taxable

Here are examples of the most common goods that are not taxable to anyone

  • basic groceries such as flour, sugar, spices, breads, cereals, eggs, butter, margarine, cheese, peanut butter, jam, honey, fruits, vegetables, milk and yogurt
  • food products (except for candies, confections, snack foods and soft drinks)
  • prepared foods sold by an eating establishment for $4 or less
  • children's clothing (including diapers)
  • footwear costing $30 or less
  • feminine hygiene products
  • newspapers
  • drugs and medicine sold under a doctor's prescription
  • goods designed solely for people with physical disabilities
  • vitamins and minerals.

Non-taxable services

Examples of non-taxable services include:

  • dry cleaning
  • carpet and upholstery cleaning
  • personal services, such as hair styling, barbering, and beauty treatments
  • medical and health services
  • veterinary care
  • car washing and engine shampooing
  • labour to install or repair real property or fixtures.

I'm a big advocate for not having the taxes added to the prices when we pay for goods and services. In a lot of other countries the price of goods and services include the taxes. This is convenient, however the amount we pay in taxes can be hidden in the price. Adding the tax at the time of purchase helps us stay aware of how much we are taxed. Knowing what goods are not taxed and seeing the savings is a great feeling. We work hard for our money and this is a great way to make it go the distance.


Here's a video on how to calculate you income after taxes:

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