We live here now.

…it’s not the reason you might think. Certainly, if I could avoid paying taxes, I would do so; however, this is not the primary reason I would rather live someplace tax-free. My primary reason has to do with the unnecessary and stunning complexity of the tax rules. Today I encountered a particularly delightful example.

Consider an ordinary-looking receipt. I have to process this for my corporate income taxes. I use QuickBooks Pro to do my books, although I imagine this problem exists in all major book-keeping software. I have to enter a tax code for this transaction in order to get the input tax credit (ITC) related to the GST I paid which, I should mention, comes to $2.49. Look at how hard I have to work for my $2.49.

First, I happily choose tax code “S” for standard tax rate (6% GST at the time, 8% GST in Ontario, where this meal was purchased), then happily enter the net amount of $46.30 into QuickBooks. I see that the total is not the $52.10 I expect, but rather $52.78. Whence the extra 68 cents? Not too bad yet, since this pretty common: some items are only taxed at GST, others not at all, and usually it’s clear what’s what. I fiddle for 10 minutes or so before recalling algebra and solving the following system of equations. (Yep!)

Let x be the amount of the bill attracting only GST, and let y be the amount attracting GST and PST.

x + y = 46.30; 0.06x + 0.14y = 5.80

I solve this, but get the ugly y = $37.775, and that can’t be. Perhaps part of the bill attracts no tax at all. Well, 5.80 / 0.14 = $41.43, roughly speaking. That means $4.87 is not subject to tax at all. But what the hell comes to $4.87 on the cheque?!

Oh wait, there’s a .29, another .29 and a third .29, which I know add to .87. Aha! I can’t believe it: the tomato, jalapeño and asparagus do not attract tax because they are fresh produce!

I’m sorry folks, but this is insane. There is no way Eggspectation is doing this correctly. If that were the case, Pizza receipts would require a mathematics degree to figure out, since they use fresh produce (one hopes) in their food, too. Could you imagine if a restaurant itemized your salad and charged you taxes only on the (processed) dressing?!

Whether Eggspectation is computing their taxes correctly or not, shame on Canada for having sales tax rules with the potential to create this situation at all. It’s ridiculous. It wastes time for vendors, book-keepers, tax collectors… sure, it fuels the bureaucracy and gives civil servants jobs, but that’s not why I pay taxes, and I certainly didn’t want to pay for an absurd system like this!

So that’s why I long to live in Andorra, where at least there is almost no income tax. I don’t know about their sales taxes, though… that bears another look. To the point, though, it’s the complexity of the tax system I want to avoid. If we paid a flat sales tax on everything and a flat income tax, then I would be much happier. Happy enough perhaps not to need to leave Canada.

I just received my quarterly statement from ING Direct, with whom we save our money. I like reading their newsletter, as it occasionally has something interesting for me, such as when I learned about high-interest US dollar savings accounts. This particular edition is geared towards tax time, since the deadline is April 30 to submit your returns. It begins, “Everyone loves a tax refund (well, maybe not the government).”

Not me, either.

A tax refund means the government, specifically the Canada Revenue Agency, had money that was rightfully yours, and they definitely don’t pay you interest for your over-contributions through source deductions! When you receive a $1,000 refund and enjoy it, you are willingly submitting to a short-term forced savings program that earns you no interest. No thanks.

The sweet spot seems to be owing the CRA just short of $2,000 per year at tax time, which I recommend paying exactly on April 30 and not a moment sooner! Owing them money means that you had their money interest-free for on average six months, and not the other way around. You can earn interest on that money, even at a measly 3%, rather than let the government do that. Anything more than $2,000, though, and they might sign you up for tax instalments, which is just another short-term forced savings program that earns you no interest. Avoid it.

If you are an employee, you can petition the CRA to reduce your deductions at source. I have never done this, so please contact someone who has done it to learn how. As I am my own employee, I can choose more flexibly when my source deductions are remitted, so I can keep my money out of the government’s hands longer than most employees can.

Stop loving tax refunds. Let them start to make you a little angry. Do what you can to avoid them.