Tax Mythology

In 2020, I published my first book –?Making Life Less Taxing .??It’s a breezy read and was intended to put my toe in the water in the field of publishing while trying to push my message that people should take their tax affairs a lot more seriously than I have experienced over my career while also trumpeting that Canada needs significant tax review and reform.?

One of the most eye opening experiences I have had over my long career as a tax professional is how susceptible people are to what I call “tax mythology”.??Tax is complex.??Period.??There are no shortcuts.??And rules of thumb are minimal.??And certainly your buddies likely know as little about tax as you do.??

To illustrate this concept, Chapter 1 of my book is entitled -?Who Knows More About Taxes,

Seinfeld or Kramer??– and the opening paragraphs read as follows:

One of my favorite episodes of Seinfeld features a memorable exchange between Jerry and Kramer about tax write-offs. Kramer offers to help Jerry obtain a refund on his stereo, which is two years past the expiration of its warranty. A couple of days later, a package arrives for Jerry in the mail—which turns out to be his own smashed stereo. Kramer then bounces in and explains that he purposely broke the stereo because Jerry’s warranty had expired, and therefore, the only way to get Jerry’s money back is to cash in on the $400 insurance policy that Kramer had purchased from the post office.

“So you’re going to make the post office pay for my new stereo?” Jerry asks incredulously.

“All these big companies, they write everything off,” Kramer assures him.?

As Jerry continues to poke holes in Kramer’s scheme, Kramer keeps repeating the phrase “tax write-off” until Jerry finally calls his bluff, betting that Kramer doesn’t even know what a write-off is. He happens to be right: Kramer has no idea how tax write-offs work, and neither does Jerry.

As I am someone who has devoted his career to understanding the nuances of taxes, including tax write-offs, this was one of my favorite television moments.

…

In my personal and professional experience, I have found that the level of knowledge about taxation in the general population is extremely weak. When I attend networking events, I always meet people who brag about how much money they make and what they do to save money on taxes. Ninety percent of the time, the actions they describe are flat-out wrong.?

I remember one guy telling me, “I bought my lakefront cottage through my company because my buddy told me that would save me a lot in taxes.”

“Well, you did, did you?” I replied. “And your buddy thinks that’s a good move?”

Internally, I found myself debating whether to offer my expertise and burst his bubble by telling him that he’d just exposed himself to triple taxation, or let him continue to brag. I went with the latter because hanging out at cocktail parties and hearing about tax mythology is quite fun.

The above is a short but real life depiction of my experiences with tax knowledge.??I don’t say this to pump my own tires since God knows I know little about most subjects in life but given the importance that taxation plays in one’s financial life (it is usually, by far, the most expensive outlay that an individual will make over their lives) it behooves people to take such a topic seriously.??

It’s kind of like health…I know little about medicine and certainly wouldn’t give people advice about it.??Instead, I try to soak up advice from trusted medical practitioners so as to help me enjoy a healthy lifestyle.??Without health, what do we have? Accordingly, I pick my trusted advisors carefully and certainly don’t rely on my buddies for advice other than casual tips.??

So, overall, what’s my short message???Don’t be a Kramer.??Be a Jerry…continually question the advice you’re getting.??Choose who you accept your tax advice from very carefully.??Your friends and family (unless they, of course, are tax practitioners) are usually a poor choice. Ensure your lawyers and / or accountants have sufficient tax experience.??As I discuss later on in my book (Chapter 7 to be precise which is entitled?Anyone Can Say, “I Can Do Your Taxes”—So Buyer, Beware…) anyone can say they know taxes.??There is no Canadian regulation around who can say that they’re a tax specialist.??And, in my opinion, that needs to change so the public can be protected.??

In the meantime, if a tax plan sounds too good to be true, it probably is.??Be very careful about the numerous tax myths that exist and will continue to be created.??They’re dangerous.??