{"id":12574,"date":"2020-02-10T08:00:45","date_gmt":"2020-02-10T13:00:45","guid":{"rendered":"https:\/\/www.zolo.ca\/news\/?p=12574"},"modified":"2022-07-29T22:45:23","modified_gmt":"2022-07-30T02:45:23","slug":"tax-myths-debunked","status":"publish","type":"post","link":"https:\/\/www.zolo.ca\/blog\/tax-myths-debunked","title":{"rendered":"5 Common Tax Myths Debunked"},"content":{"rendered":"\n

While some Canadians may get excited about a potential tax refund, most dread the yearly chore of filing their T1 General before the tax deadline at the end of April.
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Part of what fuels this dread is the myths and the confusion that surrounds the world of taxes. To avoid paying too much, or too little and risking an audit, here are five common tax myths you just can’t ignore.<\/p>\n\n\n\n

Myth #1 – \u201cRich people can use tax havens to avoid paying taxes.\u201d<\/h2>\n\n\n\n
\"Elderly<\/figure>\n\n\n\n

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For many Canadians, the process of filing taxes is often accompanied by feelings of confusion and frustration; what makes these feelings worse is the idea that others are ‘getting away’ with not paying their fair share of income tax. <\/span><\/p>\n\n\n\n

According to a survey by the Organization for Economic Co-operation and Development (OCED),<\/span> 69% of Canadians<\/a> feel the government should tax the rich more than it currently does in order to support the poor and less wealthy. (That’s slightly more than the 68% average for the 21 nations that participated in OCED’s 2018 survey).<\/p>\n\n\n\n

During tax season, rumours start to fly about the ability of rich people to evade paying taxes by using havens \u2014 offshore bank accounts, such as Panama, a country that was recently made famous when, in 2016, it was leaked that almost 900 Canadians used the country’s banking system<\/a> in an attempt to dodge paying Canadian income tax using accounts in Panama. <\/span><\/p>\n\n\n\n

What is a tax haven? The OECD, a Paris-based group of 30 developed countries, identifies a country as a tax haven based on three criteria:<\/p>\n\n\n\n

#1. Little to no taxes are charged to non-residents who park their money inside the country. <\/b><\/p>\n\n\n\n

#2. The country and its officials (as well as the bankers) will go to great lengths to protect the personal financial information of non-residents. <\/b><\/p>\n\n\n\n

#3. Since there is little to no scrutiny, even from tax officials in other countries, the country’s money system lacks transparency. <\/b><\/p>\n\n\n\n

Despite the widespread press over the 900 or so Canadians caught up in the Panama tax haven scandal<\/a> most wealthy Canadians can’t and don’t use tax havens to avoid paying taxes. Therefore, this tax myth is debunked about wealthy using tax havens. <\/span>That doesn’t mean wealthier Canadians don’t find ways to minimize the tax they owe. And the idea of reducing your tax burden is appealing to just about every Canadian, regardless of their income bracket.<\/p>\n\n\n\n

Over the years a number of less-than-legitimate methods have been used to avoid paying taxes, including dubious charitable donations, declaring investment income rather than business income, and the use of tax-advantaged trusts. (For more read: What Canadians Can Learn from the Panama Papers<\/a><\/em>.) But most, if not all, of these shady practices, are now extinct, thanks to the motivation of the current federal government and the Canada Revenue Agency to close tax loopholes and chase those who evade paying tax.<\/p>\n\n\n\n

And the idea of reducing your tax burden<\/a> is appealing to just about every Canadian, regardless of their income bracket.<\/p>\n\n\n\n

In part, because we as Canadians pay a lot of taxes. On average, a working Canadian (single or family income) earns just over $79,000, but paid $33,272 in total taxes, as of 2014. To put this in perspective, that same Canadian paid just $28,887 on food, clothing and shelter combined. So unlike the world\u2019s wealthy who sock their money into off-shore accounts, the average Canadian spends 42.1% of their income on taxes and only 36.6% on basic necessities.<\/p>\n\n\n\n

While there is nothing illegal about holding offshore bank accounts, their usefulness as a tax shelter is mainly a thing of tax myths, at least, for the majority of Canadians. <\/span><\/p>\n\n\n\n

According to the Canada Revenue Agency\u2019s document, <\/span>Using Tax Havens to Avoid Paying Taxes: Worth the Risk?<\/em>,<\/span><\/a> the answer to whether or not tax havens are a legitimate way to reduce your capital gains tax is simply… no.<\/span><\/p>\n\n\n\n

Again, there\u2019s nothing wrong with holding offshore accounts. But, the CRA makes it very clear that using an offshore bank account for the sole purpose of withholding taxes is against Canadian Tax Law and classified as tax evasion. <\/span><\/p>\n\n\n\n

Myth #2 – \u201cI can avoid capital gains tax by claiming recurring losses from my income property.\u201d<\/h2>\n\n\n\n
\"man-pays-deposit-for-rental-unit\"<\/figure>\n\n\n\n

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One common way Canadians try to reduce their capital gains tax bill is by claiming a recurring loss on their income or investment properties. <\/span><\/p>\n\n\n\n

Of course, the CRA knows that it can take months and even years for a rental business to start turning a profit. However, they are quite aggressive when it comes to auditing rental loss deductions. <\/span><\/p>\n\n\n\n

With that in mind, it\u2019s important to keep clear records that prove you were diligent when buying the property and deciding on how much to rent it out for when avoiding this tax myth. <\/span><\/p>\n\n\n\n

Remember, it’s perfectly acceptable to claim losses on a real estate<\/a> investment property, but for any expense claimed you must be able to reasonably prove that the property will start earning a profit later on in the future. <\/span><\/p>\n\n\n\n

Myth #3 – \u201cI can claim all of my vehicle\u2019s usage as business use.\u201d<\/h2>\n\n\n\n
\"Man-in-car-adjusting-mirror-adjusting-expectations\"<\/figure>\n\n\n\n

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Sadly, many Canadians live under the false assumption that they\u2019re able to simply write off their vehicle\u2019s usage as a business expense. Unfortunately, this is a very common tax myth. <\/span><\/p>\n\n\n\n

For the Canada Revenue Agency, a taxpayer that doesn’t claim even a small portion of a vehicle’s use as personal is a taxpayer trying to dodge paying taxes. Remember, even driving to and from work is <\/span>categorized as personal use. Anyone that does want to use legitimate business use of vehicles as a way to reduce taxes owed, needs to <\/span>keep a detailed logbook of kilometers traveled and for what reason. <\/span>Without this, your expenses may not be eligible as a deduction. <\/span><\/p>\n\n\n\n

Myth #4 – \u201cThe CRA only cares about their money, even if my business is going through financial hard times.\u201d<\/h2>\n\n\n\n
\"capital<\/figure>\n\n\n\n

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One thing the CRA knows for sure is that self-employed Canadians will tend to maximize their expenses in order to minimize the taxes owed on earnings. But minimizing and not reporting income are two very different strategies. <\/span><\/p>\n\n\n\n

Turns out the CRA has plenty of tools and information to learn about you and your industry. And if your numbers don\u2019t line up with what\u2019s typical, they’ll want to know why.<\/p>\n\n\n\n

If, however, you are a business owner struggling and you fear the impact of a large tax bill, it’s best to contact the CRA sooner rather than later. In recent years, the CRA has added tools and resources<\/a> aimed specifically at helping Canadian entrepreneurs.<\/p>\n\n\n\n

Myth #5 – \u201cI don\u2019t need to report income from my Airbnb.\u201d<\/h2>\n\n\n\n

\"AirbnbTotal myth. <\/span><\/p>\n\n\n\n

Any and all income earned, from any source, must be reported to the  CRA and is subject to being taxed, including income from Airbnb rentals. <\/span><\/p>\n\n\n\n

Even if you’re making just a few dollars here and there as a hobby, you need to include this income in your tax return. The good news is that you can also claim and deduct any expenses associated with running a short-term rental side hustle. <\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

There’s no way to avoid paying tax, but some common and pervasive myths make it sound as if work-arounds are possible. To make sure you minimize the taxes you pay in a legitimate way, learn what tax myths <\/p>\n","protected":false},"author":3,"featured_media":11834,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[46],"tags":[],"guide":[],"class_list":["post-12574","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance"],"acf":[],"zolo_excerpt":"","_links":{"self":[{"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/posts\/12574","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/comments?post=12574"}],"version-history":[{"count":6,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/posts\/12574\/revisions"}],"predecessor-version":[{"id":21856,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/posts\/12574\/revisions\/21856"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/media\/11834"}],"wp:attachment":[{"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/media?parent=12574"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/categories?post=12574"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/tags?post=12574"},{"taxonomy":"guide","embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/guide?post=12574"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}