I've just spent the last week of my life doing the bookkeeping for my little software training/consulting company. Since I never intend to sell this business, as far as I can tell the sole reason I have to account for every little McDonald's coffee bought on a business car trip from PEI to Toronto is so I'll know how much money to fork over to the government. Perhaps I should put that the other way around -- so I'll know how much money I get to keep.
In Canada, we have a federal Goods and Services Tax (GST) which is known in some jurisdictions as a Value Added Tax (VAT). It was 7%, but has been reduced to 6%, and now 5% by our Conservative government in Ottawa. Good for them. But, I still have to account for each penny of GST paid for the period September 2006 - August 2007. Which means my eyeballs have been staring at receipts going back 16 months.
We also have provincial sales tax (PST) in Canada, similar to a US state sales tax. The provincial sales tax varies from province to province. You have to know how much it is so you can extricate the GST. Let me give you an example. You buy something in Ontario, and the total cost is $10.00. There was no PST, so the formula for extracting the GST is 6/106, which should give you something close to 60 cents.
But what if there was PST too? Then, the formula is 6/114 - which accounts for a 6% GST and an 8% PST.
But wait! What if you didn't purchase the item in Ontario, you bought it in PEI? Here, the PST is 10%, so you might think that the formula would be 6/116. And you would be wrong! Why? Because in PEI, the amount that the provincial tax is based on includes the GST paid. That's right, the province of Prince Edward Island TAXES A TAX! So, the formula for PEI is 6/116.6. (Note to math teachers reading this: please feel free to use these examples as a classroom exercise!)
Every quarter I have to account for my sales and revenues, and GST collected, subtract GST paid, and forward the ever-hungry maw of the Federal Government the taxes I have collected on their behalf. You heard that right. Every business owner in Canada is, in effect, a tax collector for the federal government. And we don't get paid for doing it. They don't even thank us! Of course, being a very small business owner with, shall we say, limited staff, I only calculate my GST paid out once a year, so I simply pay them the GST I have collected each quarter. The problem with this? Sometimes I have not billed a client within the time frame for which I must report income. Sometimes there are billing issues that can take weeks to iron out. Yet, the government demands this form be completed, and even sends threatening letters from people in high places if I fail to do so! The second problem is, it's just plain inconvenient. I may not be in my office. I may be overseas. I may be ill. I may be indisposed. Yet the grinding wheels of government turn inexorably.
I am always happy to have a business trip to the States or oversees. The accounting is so much simpler!
The time spent performing GST calculations, and the money spent on accountants to deal with the GST, amounts to a huge drain on productivity in Canada -- as is all the minutae of accounting that goes into the reporting of a small Canadian business.
I'm all for simplifying the Canadian tax system.
On the positive side, if you would like to know what I was doing in Calais, Maine on September 11th, 2006, I can give you a detailed blow-by-blow account. And I've got receipts to back it up.
And that's the way the Ball bounces.