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February 4, 2016 | Be Prepared

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.


Without mentioning Nine Eleven again (actually, never again), a few more thoughts on tax shelters, then a brief update on BucketHead, my dog.

Why you should borrow money.
Nope, not to get something venal like a vacation or hair plugs, but to put money into an RRSP before the deadline (Leap day – February 29th). Here’s how an RRSP loan works: borrow $10,000 and the bank will probably give you a cheap rate (ask for 2.75%). The lender will also provide a grace period of three or four months before a payment’s due – time for your tax refund to be processed. So, if you earn a hundred grand, you’ll be getting about $3,800 back. Use that to pay down the loan. Now you owe only $6,200, and yet have $10,000 in your plan. The interest is not deductible, but amounts to just $170 a year. Pfft.

Always marry someone richer than you…
That way they can open a spousal RRSP, since they likely have a higher income. Simply put, the person earning more contributes to a spousal instead up to their own limit and deducts that from their own taxable income. After three years the money belongs to the other person, who can withdraw it and pay less tax than the spouse saved. Presto. Income-splitting. (The spouse making the big money should do the RRSP thing while the other income, if possible, is used for TFSAs.) This works great for a mat leave, so always ensure you delay pregnancy until the maturation of the spousal plan. Click on my name for a fertility calculator.

…who has a fat pension.
Spousal plans are also a must for those hated people with juicy, government-like defined benefit pension plans. They usually have reduced RRSP room, but every sous of it should be shoved into a spousal, assuming your mate is not another pampered bureaucrat. That way you’re able to fully milk the deduction, reduce your taxable income and shift this wealth to your spouse for later enjoyment. Collapsing the RRSP in retirement will not up you into a higher tax bracket and thus further enrage your friends.

Be mindful of the Old People’s dole.
Technically it’s called CPP and OAS, but to the moisters who want the Boomers to die a slow death of starvation and polar bear baiting on an ice floe, it’s pogey. After all (they cry), why should wrinklies get free money from Ottawa when their spawn can hardly afford a first home costing $800,000? Let’s get our priorities straight! However, if you’re an old fart, or ever plan on aging in the future, understand the huge difference between an RRSP and a TFSA. The former defers tax and the latter eliminates it. So at age 71 all retirement plans turn into taxable cash or must be changed into an income-producing RRIF. That income (starting at more than 5% of the total per year) is dumped atop other earnings and can push your tax rate significantly higher. Bummer. But the same income flowing from a TFSA is not counted. No higher taxes. No clawback of the federal pogey. You can have it all. Irritating your entitled kids is just the icing.

Your mortgage & your RRSP.
Normally this is an exciting idea – making mortgage payments on your own house into your own RRSP and giving the bank the finger. But not now. Mortgages are too cheap, and an RRSP mortgage must be set up at a ‘market rate’ or the CRA will crush it. With five-year fixed loans in the 2.5% range, this is not exactly a great return, especially when you factor in the set-up and administrative costs. The loan must be admined by an arm’s-length institution. It has to be CMHC-insured. It must be lawyered. It’s a lot of work and expense to go through to make a GIC-type return. So, wait.

BUCKET HEAD modified

A number of kind people have asked about Bandit in the two weeks since my hairy beast went under the knife. He shredded the ligaments holding his knee together (it’s a common thing, sadly) leading to a Tibial Tuberosity Advancement (TTA). So now both he and I have titanium implants, which essentially makes us chick magnets.

His stitches came out today, and he’s walking like a guy with a big gun in his pocket. But the smile is back, the drugs are good and the prognosis, says his orthopaedic surgeon, is excellent. Six more weeks and he’ll be trotting perfectly, while once again looking like a cross between shag carpeting and out-of-control Q-tips.

The worst, though, is the bucket on his head, which must remain a few more days. So. Damn. Embarrassing. He resembles a satellite dish, and has learned to flip his water bowl about two feet into the air with the lip of it. All-in, that knee cost thirty-five hundred bucks. Next month he starts work at Starbucks.

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February 4th, 2016

Posted In: The Greater Fool

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