Saving Money Through Paying Less Retail Tax

Let's face it - taxes are one of those things that are simply a necessary evil. No one likes paying them - no one likes it when taxes go up, and it was only a couple of years ago that I sat down and realized how much taxes I actually pay. Without giving exact numbers, here's how I was able to break it down:

First, taxes on my yearly salary. I get taxed something like 34% of my annual salary - that is, more than 1/3 goes towards federal and provincial income tax. This money's gone before I even see it. Now, all the financial planners out there would tell you that you can lighten the pain by Registered Retirement Savings Plan (RRSP) deductions. This is true, only if (and this is a big if) you have anything left over after you pay your bills (most of which have taxes on them). Now, the federal and provincial taxes are used for health care, education, the military, etc. I am OK with the expeditures as long as they are not wasteful - but of course, as you know, liberal governments tend to gravitate towards spending more than cutting costs, and when you hear of instances where the government in the U.S. spent $10 million on a single missle that is used to shoot down a satellite, or the billions of dollars that go into ridiculous ventures like space exploration - it just boggles the mind. Now, I'd be in favour of having a voice in how my tax money is being used. While I can't say I'm thrilled about paying taxes, I realize it's a responsibility as a Canadian citizen that I must do so. I am OK with that. What I'd like is for the governments to give us a list of what programs they have and we can prioritize them so that our tax dollars are weighted towards what's important to us. This way, you won't have make-work fart-away programs that no one wants, that gouge the taxpayers of millions of dollars every year. It is more democratic to do it this way, since people can help fund what is important to them, rather than trusting the government with the purse strings without a means of accountability. But I am getting off topic here...

So I basically have 66% of my paycheque left. Of that, the largest chunk of it goes towards my mortgage (which, as far as I am aware, carries no additional taxes). However, like most people, I pay property tax to the municipal government - that funds schools and roads and parks and libraries and such. Now that I have a kid in school, I can see the direct benefit of paying these taxes. So after you take out property tax, we have things like telephone, water/hydro, and heating/gas, the bills of which all have taxes in addition to the already exaggerated amounts. After the bills are all taken care off, what meager amount is left is used for the daily spending (thankfully grocery store food is not taxed - at least not yet). If you have a car, your car's purchase price is taxed. Your gas that you put in your car is taxed. Anything you buy for your home is taxed (not to mention your home's purchase price itself, whether it is new or used). Your consumables and non-consumables around the house are taxed.

Some people have tried to save on taxes by buying from second hand stores (or stores that sell used merchandise, like Blockbuster, DejaVu Discs, etc.) Even used stuff is taxed (why, I have no idea - it was already taxed once). Now, in Ontario, we pay an automatic 8% on provincial purchases, and on top of it another 5% that is a federal tax (Goods and Services tax). Now, that GST amount used to be 7%, but thanks to the kept-promise of the federal Conservative government, it has been cut down to 5% over the past couple of years. Still, it sucks to have to pay 13% tax on top of anything you buy.

In the end, it's a pretty depressing story. Some people have indicated that they are taxed to death, utilizing an old cliche, that is more used to complain than to get results. These folks complain about the tax, yet continue to pay it.

Now, there are some things you can change and some things you can't. I certainly am not in favour of tax evasion - that is illegal, and I would never advocate this. Similarly, I am not talking about buying black market or stolen goods. Nor am I suggesting that you pay for things from a merchant (who should be charging taxes) by cash so you avoid tax and they avoid reporting the sale - this is totally illegal and I'd never support someone doing this). However, there are some legal avenues which you can take, as a consumer to lessen your tax burden. It all revolves around not buying anything new, and buying things through non-retail outlets. I know, you may be skeptical and wonder how much you can actually save doing this - trust me, it's well worth it.

You already know that buying anything new in the store will automatically gouge you another 13%. So why buy new? I don't know - some people just have an aversion to buying second hand goods. We're not talking about buying someone else's used underwear or someone else's toilet or their toothbrush. We're talking about things which people buy a lot of these days - cell phones, computer equipment, gadgets, etc. People buy second hand or used cars all the time, yet they insist on buying a new DVD player. Not sure why, but if you do and go into Best Buy, you are going to be paying an inflated price which will certainly have taxes on top of it. Why not look at places like craigslist.com, which has local sellers who are looking to get rid of stuff (stuff that they more than likely bought brand new, retail). Or you can check eBay, if you can find someone in Canada who has it (I don't recommend buying from the U.S. consistently, as eventually the random duty charges will hit your package and of course, by then it will incur GST/PST as well for some stupid reason (why the government feels it necessary to charge taxes on used items you didn't even purchase in Canada, I will never know).

You know, these days, it is very, very rare to see me buying ANYTHING retail. My wife, who is almost nine months pregnant, got maternity clothes (Thyme brand, which is not cheap) through Craigslist. These are barely worn by the mothers selling them. I managed to figure out what I saved on the clothes in comparing it to what Thyme has on their website. My wife's maternity wardrobe would have cost $3100.00 Cdn. + tax in the store. You know how much we got it for, second hand (in excellent condition)? We paid a mere $285.00 from various sellers. $3100.00 + 13% tax is about $3500.00. We saved a combined 92% off the retail price, and that includes taxes. Every single piece of networking equipment I have at home now was purchased off eBay or craigslist. My cell phone was bought from Crraigslist. My PDA from eBay. All the memory sticks/expansion modules I bought off eBay. My video cards for my computer and almost all my computer games - off eBay. My PSP and all the games for it - craigslist and eBay. 90% of the DVDs that I have in my collection are either gifts, or second hand purchases from eBay or Craigslist. I've not only saved a ton of dough, but I saved the taxes as well. It is not illegal for me to buy something second hand from someone. It's a win-win situation. They can make back some of their original purchase price (and since they did not make a profit on the sale, they are not legally obligated to report it). As a buyer, I save on retail price and taxes.

Many of the car experts have it right. Buy your car second hand. Not only are you not overpaying for a quickly depreciating asset (what a poor combination) but you save on the taxes.

Coupons are another great way to reduce taxes, and save money in general. Yes, I know what you'll say - it takes more effort to clip the 25 cent off coupon than the yield produces. But like everything else, we're talking an established and consistent practice of using coupons - it will save you hundreds, if not thousands, over the years.

Another method that some can use is the good old fashioned bartering system. No, this is not the same as paying someone under the table, since they are selling the service for money (whether it be cash, credit card, cheque, debit, whatever). It is illegal because money is exchanged and the sale is not reported. In the case of bartering, no sale for funds takes place; rather, you barter goods for services or services for services. An example: if I were to hire an electrician, I'd have to pay him/her his/her hourly cost + tax on top. That is the law. Now, if the electrician does not accept funds from me, but rather I exchange my services of fixing his/her home computer or what not, that is perfectly legal. No money is exchanged. Now, where this likely can get dicey is when people don't regard it as a legal barter, but as a bribe or whatever else. So bartering carries some potential legal risks.

Now, some people believe that you can save on taxes by reducing your usage of things. That is technically true. By using less electricity/heat/water, you are in effect contributing to a lower overall bill, which translates to less taxes. But make no mistake, these companies are not stupid - they can comply with environmental lobbies who put pressure on them to encourage their users to use less - but ultimately, they run a business, so their lost up-front revenue by your conservation practices, will no doubt show up as back-end fee increases later. Conservation is not the way to go if you want to save money, since they'll gouge you one way or another.

I'm Glad I Don't Live In Toronto

Every year, something happens to confirm that we made the right choice seven years ago not to buy a home in Toronto. Whether it was the garbage strike a few years back where the entire city had no garbage pickup and intersections were littered wtih hundreds of rotting garbage bags in the middle of the summer, whether it was the TTC (public transit) shortages / stoppages or strikes (if I lived in Toronto, I would have to take public transit, and you know my opinion on public transit already, as seen in a previous blog entry), the ridiculous left-wing socialist mayor that is currently in office, the ridiculous amounts of "tolerance" events that goes on in the city and the eroding of traditional family events, the constant contruction on roads which never seen to be fixed, the countless road closures (including more than regular closures of major parkway/arteries into and out of the city), not to mention the amount of crime that goes on in the city - well, all this has just re-affirmed to me that it's much better to live in the suberbs, even though the 'burbs have their own share of problems, albeit significantly fewer than Toronto.

The latest item which has simply re-affirmed my gladness that we never decided to live in Toronto is the ridiculous new taxes that David Miller, Toronto's socialist mayor has decided to impose. On the forefront are two new, very controversial taxes, one being an increased land transfer tax, and the other being an additional drivers' licence renewal tax of 60 bucks on top of the provincially set $74.50 (though humourously I don't think they consulted the province since they refuse to help Toronto collect the extra 60 bucks). Also planned was an additional tax on alcohol, but that's been pulled for now. I also read that they had proposed a tax on cigarettes (good!) and amusement parks (???).

The mayor and his supporters claim these taxes are supposed to help offset a budget shortfall (I think whenever this happens in politics, it's an indication that the government is not working within their means or that they are not aggressively looking at cuts - how governments get themselves in debt, I will never understand) - anyway, I would take this rationalization seriously if it weren't for the fact that Toronto council recently voted themselves a pay raise. And that the city has put really dumb-ass things in their budget, like commissioning something like $300,000 - $400,000 to do a manual count of how many trees there are in Toronto. I'm not kidding here.

I'm no economist, but I've always believed heavier taxes drive people away from spending (resulting in less taxes collected through sales) and so your economy suffers as a result. Increased taxes discourage spending and companies will be forced to let go of staff since their sales will drop, reducing in less jobs and higher unemployment.

Now, as a suberbanite, this news makes me chuckle, but in a way, it's not bad for me. People who were planning to buy houses in Toronto will likely think twice, and that will make our suberbian regions much more attractive, thus driving up our housing prices (which are very high to begin with, but as a guy who has no plans to sell his house anytime soon, I'm basking in the increased investment value in my home as it is, and its certain continual rise in value).

The additional driver's licence renewal tax is ridiculous at best. What this will do is simply get people to register their vehicles outside of Toronto. Who is going to go to two places to renew their drivers' licence, anyway? Sheesh...

The thing is, this is not a big city thing. Others large cities in Canada have their budgets in order and in fact cities like Calgary have a nice surplus to work with (OK, they're in oil country, but...). Ultimately, this is not about having more money; rather, Toronto elected (and re-elected) a mayor whose philosophy is spend and tax, so what do you expect? I suspect that had Jane Pitfield been elected (and while I was not eligible to vote in last year's municipal elections, as I am not a resident of Toronto, I still supported Jane Pitfield and financially contributed to her campaign), things would be much different. Now I realize that Toronto's mayor has to deal with a not-too-swift Ontario Premier to get money for the city, but the previous mayor, Mel Lastman, as controversial as he was, was able to get money for the city much more successfully than this guy. I am hoping that my Torontonian friends who are fed up with this would not take it lying down and consider moving into the land of the 905 region where at least many towns and cities are run much more reponsibly. I look to see you there!