If you visit any bookstore or search an online book retailer, you'll discover many books on how to be Santa. There's How to be Santa Claus, and Santa and the Business of Being Santa, among other titles. But I didn't see one called Santa and the Taxman. Nor did I find anything related to taxes and Frosty the Snowman, or Scrooge. Still, if we look at each of these characters, there's a thing or two we can learn that can apply to our own planning – really.
Santa Claus
The truth is, Santa is Canadian. He has a Canadian postal code (HOH OHO) and, according to a spokesperson for Canada Post, the company receives letters to Santa from all over the world in languages from Albanian to Vietnamese. Further, a previous official statement by a former minister of citizenship, immigration and multiculturalism confirmed Santa's citizenship.
As resident of Canada, Santa is required to file and pay taxes in Canada on his worldwide income. I managed to locate Santa's accountant, and we spoke about some of his tax issues. First, he qualifies for the northern residents deductions, which requires Santa to file Form T2222 and consists of two deductions: a residence deduction (worth over $6,000 for 2016) and a travel deduction (which can be claimed for each eligible trip he makes, the maximum deduction being the cost of the lowest return airfare available at the time of any trips; evidently Santa is in a dispute with the Canada Revenue Agency over the travel deduction since he provides his own sleigh).
Santa is self-employed, and he claims a deduction for the salary paid to Mrs. Claus. He's careful to pay her an amount that is reasonable for the work she does for him – which is smart income splitting. Santa does use his vehicle – uh, sleigh – for work purposes, and so he tracks his mileage in a logbook as CRA requires, so that he can claim a portion of his sleigh's costs (insurance, repairs and maintenance, interest on a "sleigh" loan, capital cost allowance and feed for the reindeer – this last cost, his accountant argues, is akin to gasoline for a traditional vehicle).
Claiming deductions does assume there's a commercial activity being carried on. CRA won't look kindly on deductions being claimed where an activity is merely a hobby. No problem for Santa. He does earn revenue from selling toys to retailers, making special appearances and licensing the rights to his name and image to the Coca-Cola Co. (among others). It appears that, after all his expenses (including high payroll costs to pay his elves) he just breaks even each year, after paying himself a modest income.
Frosty the Snowman
For a brief time, Frosty brought joy to the children who made him. He was a jolly, happy soul, with a corn-cob pipe and a button nose and two eyes made out of coal. Frosty knew his days were numbered. He said to the children, "Let's run and we'll have some fun before I melt away." Frosty's untimely death should serve as a reminder to all of us that we're here for a short time.
This Christmas and holiday season, take the time to enjoy your family and friends. And, just as Frosty shared parting words with those close to him (he waved goodbye sayin' "Don't you cry, I'll be back again someday"), take the time to share your estate plans with the kids when you're together. It's important for them to know what to expect when you're gone.
Ebenezer Scrooge
Finally, consider Scrooge. Here was a mean-spirited, miserly old man who had no time for charity or kindness. "Bah! Humbug!" he shouted in response to his nephew's "Merry Christmas." After receiving a visit from the ghost of his deceased business partner, Jacob Marley, he received visits from three more ghosts, all warning him of his fate if he didn't change his greedy, self-serving ways. After a visit from the last ghost, the Ghost of Christmas Yet to Come, Scrooge recognizes the chance to redeem himself and becomes overtaken with joy as he provides gifts to the poor and treats others with kindness.
Learn from Scrooge. This year, take the time to give generously to those in need. It's not too late. And if you donate to registered charities before year end, you'll gain tax relief this year. If you don't have the cash to give, consider making a gift in-kind; you'll be entitled to a donation tax credit for the fair market value of the assets you donate. If you have securities that have appreciated in value, and donate those securities to charity, you'll eliminate the tax on the capital gain and receive a donation tax credit to boot. Also, consider donating online through www.chimp.net or www.canadahelps.org; you can use your credit card to donate this way, and pay that off early in the new year if you're expecting a bonus or other cash coming your way.
Tim Cestnick, FCPA, FCA, CPA(IL), CFP, TEP, is an author and founder of WaterStreet Family Offices.
Tim Cestnick