Mindset influences success. Most people in business know, intellectually, that your mindset plays a major role in everything you do.
Mindset is a simple idea. According to Stanford University psychologist Carol Dweck, mindset is the view that you adopt for yourself that determines how you live your life, see the world, and make decisions. Mindset is also your unique perspective on the way you view the world, which, in turn, shapes the way you operate.
But, how does this apply to my tax?
Your tax personnel may not realize that perceptions about money, wealth, and tax can influence their decisions on how the tax department functions and their views on compliance, recoveries, and planning opportunities.
What you need to know about a poverty mindset
A poverty mindset has nothing to do with the financial health of a company. It’s entirely about the thoughts and perceptions of individuals, which lead to beliefs that shape a person’s decisions.
Where tax personnel have a poverty mindset, the company could be paying more in indirect taxes than they are required to pay.
So what does a poverty mindset look like in the tax department? There are many potential signs of a poverty mindset, but some of the most common signs might be:
1. You don’t know who your tax personnel is because you never see them outside the tax department.
A tax person with a poverty mindset may hunker down and be entirely focussed on the monthly compliance obligations. Compliance is only one component of successfully keeping more money within the company. A well-rounded tax department would have elements of planning, audit defence, recovery, projects, in addition to compliance.
2. The fees paid to tax consultants for professional services are growing year over year.
These fees paid to consultants could result from tax recovery projects that were undertaken to identify missed input tax credits or overpayments of GST/HST. A person with a poverty mindset may not look for these credits themselves because of perceived risk.
3. There is a general belief that because GST/HST is a flow-through tax, there are limited opportunities for cash or cash flow savings in the tax department.
A poverty mindset suggests that since all tax is a flow-through tax (it’s not) that is programmed into a system, there is no point in planning. See the comments under (1) above. Businesses are dynamic entities. As directions change and new projects are undertaken, opportunities for either recovery or minimization are always available.
4. There is a general belief that there is no ability to change the nature of a transaction over which tax has no control.
While it is true that tax is not in control of an upstream transaction, a poverty mindset would allow the tax to flow from the transaction without reference to whether the structure of the transaction would result in an adverse tax result.
5. The tax department believes that filing a notice of objection once an assessment has been issued is pointless.
The poverty mindset would believe that while an assessment might have been raised, there are known issues that the auditor missed, so don’t rock the boat.
The fact is that auditors are not infallible. They must review the books and records and make an assessment most expediently based on their given information.
Tax personnel have likely spent a significant amount of time coming to understand a transaction. Most auditors are not in a business long enough to understand transactions in the context of the particular company. They will have no choice but the raise assessments based on their understanding, which may be flawed. For that reason, it is almost always worthwhile to file a notice of objection when an assessment is raised.
How you can implement this mindset into your business
B. Hoffmann & Associates (BHA) are tax accountants that help medium and large corporations minimize the Canadian indirect tax they pay on an ongoing, consistent, and support basis. They love the stories in an organization that, when put together, become the business.
We understand that changing a poverty mindset can be difficult, but it is not impossible. A first step would be acknowledging that indirect tax affects every transaction and that it is essential to consult tax personnel on all major transactions.
Get tax professionals involved in major transactions, mainly if they are international. Invite the tax personnel to discussions early in a transaction so that they understand the background and goals. Encourage the belief that there is always more tax to save/recover. Be aware that there will always be alternatives that could create an opportunity for cash flow and cash savings.
Encourage planning to achieve the best possible tax outcome. The poverty mindset tax person will believe that they are doing their best to protect their organization’s money. And on the one hand, they are. However, the outcome of their behaviour is that while they might be protecting the funds that they know about, they will not discover the new opportunities for savings and recovery without incurring high costs.
To that end, recognizing and overcoming a poverty mindset in tax could result in the company retaining or recovering significant cash tax dollars.
If you have any questions regarding your tax department or overall tax needs, we are here to help! Contact us today for any questions or requests!