Taxation burden extends beyond familiar taxes - Money In Your Pocket

The recession has slashed government revenue and massive government spending may leave a deficit this year of $55 to $105 billion.

It is clear more taxes are coming down the pike.

There will be a big bill to pay and we may well be paying it for years to come.

This is the first of three articles on what producers should consider doing about it. It describes the extent of your personal tax burden.

Despite several years of tax reductions by the former Liberal government and current Conservative one, a substantial amount of money is still tapped from your annual earnings by all levels of government.

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The federal government recently quoted the Fraser Institute calculation that Tax Freedom Day arrived three days early this year on June 6. That is the day, supposedly, when all your taxes have been paid for the year and you can keep the balance of your earnings.

The Fraser Institute also estimates that the average Canadian family and unattached individuals earned almost $72,000 in 2008. That amount would not be taxed at the highest marginal personal income tax rate, but it certainly would not be taxed at the lowest rate either. About 14 percent would go to income taxes, amounting to almost $10,300.

However, folded into our tax returns are also significant amounts for Canada Pension Plan (CPP) and Employment Insurance (EI). British Columbia and Ontario residents also pay additional health care premiums, either directly or through payroll deductions. These are taxes as well, and along with CPP and EI, they reduce our average family’s take home income by another $6,400.

It doesn’t end there, however. Property and sales taxes siphon off another $7,400. Hidden taxes on profits, liquor, tobacco, automobiles and fuel, along with import duties, reduce the pay packet by an additional $6,200. That’s almost $30,300, or more than 42 percent of family income, and certainly more than the average family spends on shelter, food and clothing.

One way to mitigate the impact of your total tax bill is to arrange personal, family and farm business affairs to take maximum advantage of available income tax savings opportunities, both short and long term, by adopting an integrated tax management plan.

My next column will discuss the use of off-farm income as a hedging strategy, while the third will cover investment strategies to reduce your tax bill.

Larry Roche is a tax analyst with farm taxation and planning specialists Farm Business Consultants Inc. He can be contacted at fbc@fbc.ca or call 800-860-7011.