As tax time rolls around, a common topic of discussion is how to minimize the taxes that you pay to CRA every year. We typically focus on looking for allowable deductions against income, or working out strategies to defer owed taxes through various mechanisms. Something that most Canadians don’t consider is the amount of indirect taxes that they are paying all-year round that can have a significant impact on their bottom line. This is why it is always a good idea to get expert advice from experts like the team at Schell and Associates.
What are indirect taxes?
Direct taxes include things like income tax, sales tax, or corporate taxes. We see these clearly every time we look at our paycheck or sales receipt, and it is these taxes that we try to minimize by finding allowable deductions in the hope of receiving a refund. However, indirect taxes are not applied in the same way. Indirect taxes are sometimes difficult to “see” because consumers don’t pay them directly and often don’t even realize they are footing the bill. Indirect taxes tend to get passed onto consumers in the form of higher prices as a result of businesses having to pay taxes during the production process. These include things like customs duties that businesses have to pay to import goods, for example.
Are indirect taxes on the rise?
Indirect taxes are trending upward in many counties for political and economic reasons. Governments rely on taxes to raise revenues to support social spending, infrastructure, security, and all of the other things that people in modern democracies have come to expect and continue to demand. Revenues from taxes is one of the most important ways that governments raise income, but it is also very political. Increasingly, governments are under pressure to reduce taxes rather than raise them. For this reason, many governments are relying more heavily on indirect taxes as a way to continue to collect revenue without a politically unpopular increase on personal or corporate income taxes. Indirect taxes are more likely to appear to most people to be unrelated to taxes or government actions at all because they simply appear to consumers as prices that businesses charge.
In the face of increasing economic pressures on governments, we can expect that they will continue to find creative new ways to apply indirect taxes to goods and services, or will put more effort into regulating the collection of indirect taxes that are already being levied. Some areas that are increasingly being looked at by revenue-hungry governments as a source of indirect tax income include e-commerce and e-currencies. Many governments are also collecting indirect taxes through environmental fees that are being applied to things like plastic bags in stores.
It is likely that we will all be paying more indirect tax as time goes on. Because indirect taxes are difficult to avoid without actually reducing the amount of services or products that you consume, it is a great idea to discuss your tax situation with a professional who can help you develop strategies to minimize your payment of these “invisible” taxes.
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