December 31 is coming fast and it’s time for me to sharpen my own mental skills and prepare for the 2006 “Tax Season”. Someone somewhere suggested this news item, and I bookmarked it – although I can’t remember who that was or where. But, do you think you know Canadian Income Tax? Take this test!
Take the Great Canadian Tax test
Updated: 2005-10-30 06:30:17
This gives a whole new meaning to “trick or treat.”
The taxman gets the treat, while over-taxed Canadians are tricked into paying more than their fair share in taxes.
That’s the spooky results of a new quiz, called The Great Canadian Tax Test, where only 1% of respondents answered all 10 tax questions correctly, proving Canadians are missing out on tax-saving strategies.
Sure, there’s the argument that it serves them right for not bothering to take the time to learn about the precious few tax breaks left in this country.
But, c’mon. Canada’s Income Tax Act — originally a 10 page document inked in 1917 as a temporary measure to raise money for World War — is now an accountant’s wet dream with more than 3,000 pages of tax wizardry.
Then there’s this: Not only did income taxes not go away, but today we’re also paying a host of taxes (GST, PST, property taxes, capital taxes, SIN taxes, and on, and on) in after-income-tax dollars.
Last year alone, an average family paid out an extra $1,194 in taxes — with Tax Freedom Day falling on June 26. Put another way, a family of two or more who earned $83,265 paid $38,835 in total taxes. That’s a pretty big treat for the taxman.
So, it’s time to get tax savvy:
“Missing out on tax credits and deductions is like paying full price for an item that’s on sale,” says Sandy Cardy, vice-president of tax and estate planning for Mackenzie Financial, which had 1,565 Canadians take their tax quiz.
Cardy admits it’s even tough for a professional like her to keep up with all the changes to tax laws and regulations. To get the best bang for your buck, it can be worth it to get help from an astute tax expert, she says.
“When you consider the time value of money, taking advantage of all tax strategies can make a dramatic difference to your net worth over time,” Cardy said in an interview.
Overall, Canadians score high on their knowledge of the benefits of RRSPs, the largest tax shelter left. But on other strategies, we didn’t do as well.
So, let’s take the test, right now:
– Question One:
“You can sell an asset for a profit and pay tax on the capital gain over five years, provided the sale is structured so that the proceeds are not collected right away.”
True or false? Answer: True (58% got it right).
– Question Two:
“The Canada Revenue Agency (CRA) does not allow you to gift your poor performing stock to your children in order to trigger a capital loss and reduce future income taxes.”
True or false? Answer: False (46% got it right).
– Question Three:
“An RRSP contribution enables you to defer tax on that contribution until your retire or withdraw the investments.”
True or false? Answer: True (93% got it right).
BORROWING TO INVEST
– Question Four:
“The inter costs of borrowing to invest are tax deductible.”
True or false? Answer: True (62% got it right).
– Question Five:
“If you buy a mutual fund in December 2005 and the fund makes a taxable distribution in that month, you are not liable for the resulting tax in the 2005 calendar year.”
True or false? Answer: False (71% got it right).
– Question Six:
“You can reap the tax benefits of a donation to charity in your 2005 tax submission provided the donation is made before the end of February 2006.”
True or false? Answer: False. (44% got it right. Deadline by the way is Dec. 31)
– Question Seven:
“You are allowed to contribute up to $4,000 each year in a Registered Education Savings Plan (RESP) and if you miss that contribution in any year, you can carry the contribution room forward to a future year.”
True or false? Answer: False. (33% got it right.)
– Question Eight:
“You can pay for adult children to take care of younger children in your household and deduct the cost of child-care expenses.”
True or false? Answer: True. (43% got it right.)
– Question Nine:
“A parent can take advantage of their child’s unclaimed credit for tuition to a maximum of $5,000 lof tuition and fees.”
True or false? Answer: True (60% got it right).
– Question 10:
“For a tax credit, you can include all of your family’s qualified medical expenses on your tax return.”
True or false? Answer: True. (78% got it right.)
Believe it or not, Canadians who live in the Prairies are more tax astute than the rest of us.
Overall, those who took the quiz got a C grade. “This is one test where people can’t afford to miss the honour roll,” said Cardy.
Now, a word of caution: While there are many legitimate tax shelters out there, be wary of slick salespeople who are promoting an investment on the tax savings alone.
If it’s too good to be true, it probably ain’t true.