Taxation and Financial Planning – Part 1 of 2

A topic we all love to hate – but it needs to be examined a bit closer when it comes financial and insurance/estate planning – but no, I am not going to turn this into an course on Income Tax – but rather I am going to present some points for consideration in your planning processes.

I am always amused at various federal and provincial politicians that stand up and brag that “we have removed the burden of taxation from those Canadians with the lowest incomes”. Sounds wonderful and some politicos may actually believe it – but I assure you it is completely false. Other tax goodies such GST/HST tax credits for low income earners, Climate Action credits, planned low income tax credits, etc. are simply political smoke and mirrors. I will clarify something right here – I never have been, am not and never expect to be a member of any federal, provincial or civic/municipal political party or action committee – my comments are completely apolitical. I lump all political parties together when it comes to these games, and frankly I don’t trust any of them to be completely honest – but then I am a cynic or so I have been told!

OK, back to my point – sort of. Every person in Canada who purchases anything is paying taxes to all levels of government in Canada plus additional taxes to foreign governments if the item(s) purchased were made outside Canada or the raw materials came from outside Canada. And this applies to EVERYONE – from the person at the top of Canada’s Wealthiest list to the person who scrapes by begging for handouts or receives social assistance of one type or another. Charities pay taxes too – and this includes religious organisations that, for whatever reason, have been given charitable status – money is being moved around to all levels of government.

Many people “rejoice” when tax-freedom day arrives – somewhere around the middle of the year according to several organisations – I contend this is a complete fallacy – and I’ll tell you why!

Assume I make and sell a widget. When I calculate the price for which I am willing to sell it, I have to look at all the TAX inputs – buying the raw material to make it – I am paying taxes to the seller of the raw materials who is paying taxes on those raw materials to government in the form of royalties, licence fees plus taxes on purchasing the equipment that they used to get the raw materials. I have to calculate in the selling price the amount of money I paid to the manufacturers of the equipment that I use to make my widget and they have included in their price of the equipment all of the taxes they had to pay. I have to calculate the labour costs included in each widget I make and that includes payroll taxes such as CPP, EI, Health Care etc.

Then I have to include the property tax I pay for the building that houses the equipment in which I make the widget – and if I lease the building and land, then I pay a pro-rata share of the taxes my landlord pays. Next I have to package the widget and pay taxes on the materials used in the packaging, then I have to ship it somewhere and pay taxes on that including road and bridge tolls, provincial, federal and local taxes or surcharges, fuel taxes, port taxes, customs duties etc. Finally I get around to paying me – and I have to figure in my tax bill to figure what I need to have left to take of me and my family and pay all of these same types of taxes on everything we consume or use.

Whether people want to recognise it or not, wealthy people do pay more total taxes than lower income earners – they like more toys, more vacations, more luxuries – guess what – there are taxes included in all of those items too – but then, to admit that would go against the current 1% versus the 99% protests! The simple fact is, there is no “tax freedom” day – everything we spend goes for taxes or raw materials – everything in between is taxes or becomes taxes in one form or another – but let’s not get depressed about it! How does this impact on financial and insurance/estate planning?

Stay tuned for Part 2 next week!

Ian Whiting

Ian R. Whiting CD, CFP, CLU, CH.F.C., FLMI (FS), ACS, AIAA, AALU With more than 40-years of experience in the industry, Ian has qualified 3 times for MDRT, completed LUATC in 1979, the LUAC Financial Planning Skills Course and attended numerous Schools in Agency Management and Sales Management through LIMRA. He obtained his CLU in 1987 while also completed his IFIC qualification and completed his Fellowship in the Life Management Institute with a specialty in Financial Services in 1988. In 1989, he completed qualifications for his Chartered Financial Consultant designation. In 1992, he qualified as an Associate of the Academy of Life Underwriters (Head Office underwriter qualification) and in 1993 he completed his Associate, Customer Service designation program through LOMA. In 1997, he qualified as a CFP and also completed his courses and exams to obtain the Associate, Insurance Agency Administration designation. In 1999, he completed the study and examinations to qualify as a Trading Officer, Partner and Director for Mutual Funds with the BC Securities Commission. As a result, he is also qualified as both a Branch Compliance Manager and Head Office/Provincial Compliance Officer. He served for nearly 18 years with the Canadian Forces (Air) Reserve (reaching the rank of Captain) primarily working with Air Cadets and was award the Canadian Forces Decoration (CD) in 1982. Long known as a maverick and forward thinker in the financial services world, Ian enjoys the challenge of learning new material and planning for the future evolution of his chosen profession.