Many of the taxes we pay are voluntary and can be avoided or minimized. This post is not about sophisticated tax avoidance schemes or offshore banking – it’s about realizing what taxes we pay that are completely within our control and taking action to minimize them.

Sales Tax

Most states and countries have Sales Tax (or Values Added Tax) that is applied to purchased goods. Typically, a percentage between 5-15% is applied to the goods, sales tax is effectively a consumption tax. The more you spend buying goods, the more you will spend on Sales tax. So, the easiest way to reduce the sales tax you pay is to reduce your spending!

Sales Tax Exemptions

Although it varies by location, there may be some items that are exempt from Sales Tax. Here are a few that I have seen, but it is best to check your local area to see what applies.

Private Car Purchases

If you purchase a new or used car from a dealership, you will likely need to pay Sales Tax. However, in some jurisdictions, if you purchase a used car from a private seller, no sales tax is payable.

Used Homes versus New Homes

If you purchase a new home, sales tax applied to the cost of the home is likely owed to the government. However, if you purchase a used home, sales tax may not be applicable. The tax savings could be worth tens of thousands of dollars.

Basic Groceries

In Canada, some necessary groceries are not taxable – items like eggs, milk, meat, etc. However, non-necessary grocery items like candy and soft drinks are taxable. If you order food at a restaurant, it is taxable. To minimize your sales tax on food, avoid restaurants, and only purchase necessary food items from the grocery store.

Sin Taxes

Sin Taxes (or Vice Taxes) are applied to items deemed harmful to individual health and society. They are commonly applied to tobacco, alcohol, and unhealthy food items.

Alcohol

In Canada, between 20-30% of the price paid for alcohol is tax (Churchill et al., 2021). To avoid paying these high tax rates, buy less alcohol!

Cigarettes

In the province of British Columbia, 66% of the price you pay for cigarettes is taxes (smoke-free.ca, 2024). That’s $11.52 in taxes for each pack of 20 cigarettes. Once again, to avoid the 66% Sin Tax, don’t buy cigarettes (or smoke).

Automobiles

Fuel Tax

Automotive fuels including gasoline and diesel can be heavily taxed. In the Canadian province of Ontario, 32% of the price of gasoline is tax (Goldberg, 2023). Put another way, one-third of the price you pay to fill up is taxes only. Generally, fuel taxes are expected to continue increasing in the coming years as governments around the world introduce carbon taxes aimed at reducing emissions. To minimize the taxes you pay on auto fuel, consider driving less, driving a fuel-efficient vehicle, or taking public transit.

Tickets

Traffic violations can add up to costly tickets. Speeding tickets, parking tickets, and automated traffic enforcement tickets (cameras) are all costs that are avoidable by following traffic laws and being more prepared. By giving yourself enough time to reach your destination, you will be less rushed and therefore less likely to speed, fail to stop, drive dangerously, or park in incorrect locations. Traffic tickets are an avoidable voluntary tax.

References:

Churchill, S., Stockwell, T., & Sherk, A. (2021, February 17). What proportion of the price of a typical alcoholic beverage is taxation in Canada and why does it matter? [Research]. https://www.canada.ca/en/public-health/services/reports-publications/health-promotion-chronic-disease-prevention-canada-research-policy-practice/vol-41-no-2-2021/proportion-price-alcoholic-beverage-taxation-canada.html

Goldberg, J. (2023, August 2). Hidden gas taxes drive up pump prices in Ontario: Report. https://www.taxpayer.com/newsroom/news-release-hidden-gas-taxes-drive-up-pump-prices-in-ontario-report

smoke-free.ca. (2024). Taxes on cigarettes in Canadian jurisdictions. https://www.smoke-free.ca/pdf_1/taxrates.pdf