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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

October 29, 2017 | Do It

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.

When the feds proposed whacking the self-employed with a menu of tax hits over the summer, lots of people cheered. Many were here. The comment section, way down in the hold with the rats and spiders, exploded with anti-entrepreneur, anti-doctor, anti-small biz emotion. Overwhelmingly the sentiment was that regular working, ‘honest’, salaried deplorables can’t deduct stuff or pay their spouses so why the hell should some dude with a print shop get to?

It was music to Liberal ears. That was the strategy. Divide and conquer. Call the self-employed loopholers, infer they’re cheating everyone else, then jack their taxes with impunity. As you know, it almost worked. Some measures have been shelved (a 73% tax on retained earnings income) while others will go ahead (no income-sprinkling).

Lost on most of the wailing employees was the fact they, too, have a bevy of ways to reduce tax. Most of them are never utilized, because people are too busy working, minding their families, retweeting Trump, or bitching about others. So, here’s a handy checklist of a few of the most obvious. Print it out. Tape it to the fridge. Do it.

Do you and your squeeze both work? If one earns more than the other, have the chief breadwinner pay all of the regular expenses – mortgage, rent, food, daycare, weed, insurance, booze, clothes, rehab. Make the lesser-monied spouse the chief investor in the family, so the returns (capital gains, dividends, interest) will be taxed at a lower rate.

Ditto for registered retirement savings. If you earn considerably more than s/he does, or have a defined-benefit pension, use up all your RRSP room for a spousal plan. You write the contribution off your higher taxed income while your spouse gains control of the money. After three years it can be withdrawn at their lower rate – so you’ve just sprinkled!

Here’s another one, if there’s an income disparity between you: loan your less-taxed spouse a bunch of money for investment purposes. S/he puts it into a nice little non-registered account and starts collecting dividends and earning capital gains in a tax-efficient way. Even though it’s your money, none of that income is attributed back to you – so long as this is set up as a loan at the CRA’s prescribed rate of interest which is, believe it or not, just 1%. Interest must be paid annually by the end of January but all of that is tax-deductible. Yes, your spouse can write it off the investment returns. This works for kids over 18, too. More sprinkling!

Also with income-splitting: if you are a wrinkly collecting CPP (everybody should start taking it at 60, no exceptions), this can also be split with your less-taxed spouse.

If you didn’t listen to the advice on this blog, bought individual equities and were handed your rear end by Mr. Market, sell those dogs before Christmas in order to realize a capital loss which can be used to reduce taxes on capital gains. Losses can be used to neutralize gains not only in the current tax year, but going back three more years. This can help you recover taxes that you paid as far back as 2014.

You can also take crap assets that dropped in value and dump them on your kid. Another great reason to have children! Investments can be transferred to a minor child and that will also trigger a tax loss in your hands which can be used to offset gains. Now your spawn has an asset that, when it recovers in value, will be essentially tax-free with none of the gain attributed back to you.

Fill up your TFSA, obviously. Also that of your spouse. And your kids over the age of 18. Gift money to all of them with no gains TFSAs attributed back to you. Remember, $5,500 a year for 35 years earning 7% will result in $819,000, of which more than six hundred grand is compound growth. So ensure these are not savings accounts, but investment accounts – no GICs, HISAs or other dorky stuff. Also when you retire, a $819,000 TFSA will give you about $50,000 a year in taxless income which will not reduce your CPP or OAS by one cent.

If you’re 71 and have to convert an RRSP to a RRIF, be thankful you robbed the cradle and married a babe younger than you. Your mandatory retirement fund withdrawals can be based on the age of your spouse, keeping them to a minimum and allowing your nest egg to grow larger, longer.

Obviously put money into a RESP for your kids. The feds will give you an automatic grant equal to 20% – so for a $2,500 contribution you receive $500, up to a lifetime total of $7,200. Free money. Duh. Why would you not do this? If your kid grows up to be a rock star or a high-net-worth, Mercedes-driving plumber you can fold much of the RESP money into your RRSP. Remember to buy growth assets. Establish a family plan for multiple kids, not separate ones. And, for God’s sake, avoid the RESP-flogging baby vultures that skulk around hospitals. Go self-directed.

And, yes, use RRSPs. They’re still the best tax-shifting vehicle around, allowing you to write off up to $25,000 in taxable income a year. You can borrow money cheap to contribute, then use the refund to pay much of it back. Or open a plan, shift in assets you already own, and get paid money by Bill Morneau for selling yourself stuff you already own. That should make his head all splody.

So, there you go. Ten ways to cut your taxes without even becoming an MD!

When you finish doing all those, you can complain. Until then, stuff it.

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October 29th, 2017

Posted In: The Greater Fool

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