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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

May 6, 2018 | Financial intimacy

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.

Jenn and Allan are close about everything. Except money. It’s a no-go zone.

“I have no idea what he makes,” she said when I interviewed her. “Don’t know what his pension is, either. Anyway he’s terrible with money, so we keep everything separate.” No joint account, I asked? “For the house expenses, yes. We both contribute equally.” And how about the RESP for six-year-old Alana? “I look after that,” Jenn said. “Because he’s terrible with money.” I get it.

Not only are young adults spending an historic amount of time in the parental basement and getting hitched later, seems a lot of them don’t actually trust each other. Even when they marry, or have kids. Is it because so many have seen their own parents split up? Beats me. But the majority of young couples sitting across from me lately have zero clue about how this poisonous mistrust costs them a pile of money.

So let’s fix that.

Marriage (or living common law) is an economic union. Accept that, or don’t hook up. If you plan on raising a family and getting old together, finances have to be integrated. The costs of not doing so are big. Unwise spending. Secrecy. Suspicion. Lousy financial planning. Late-stage surprises. And a lot more tax.

If you truly love another person, what better way could there possibly be of expressing it than with effective tax avoidance strategies? (This is why Dorothy adores me.) Here are five of my favs.

Sleep together, invest together.
The world of finance does not start and stop with an RRSP or a TFSA, which must be registered in your individual name. Having a non-reg investment account as well means enjoying a 50% reduction in capital gains tax and using the dividend tax credit, then withdrawing income in retirement which is not subject to any withholding tax (like your RRSP or pension).

When two partners have a joint account the returns can be attributed to them equally, so if one’s in a lower tax bracket money can be saved. This also makes sense since (apparently) we don’t live forever. So when a partner passes, all of the assets immediately become the property of the other – no delay, no probate, no tax.

 

Use your RRSP to split income.
This is probably the single-best tax-busting tool available to couples when one person earns more or a partner stays home to care for the spawn. The higher-earner should plow the contributions into a spousal plan instead of their own. They enjoy the deduction (and tax relief) from their own income, but after three years the money belongs to the spouse – who can remove it at a lower (or non-existent) level of tax. Big win-win, especially when you use this to finance a mat leave.

No, you are not equal.
Married partners seldom make the exact same amount. And in most marriages a woman will take time to bear and care for children. So why would you ever set up a joint bank account for house expenses and contribute to it equally?

Bad idea. Instead the person with the highest income should pay for everything – the mortgage, child care, dog food, insurance, Netflix, data, tats – the works. The lower-income and less-taxed partner can then use all of his or her income to invest. Since they’re in a lower tax bracket the returns net of tax will be greater, and family wealth augmented.

Borrow from the Bank of Love
Why get a loan from the voracious Venus fly-trapper [email protected] when you can borrow from your husband or wife? The rules allow spouses to give each other loans at the CRA proscribed rate of 2% (it used to be 1% until April), which can be a huge advantage. A husband (or wife) could loan $500,000 to be invested in assets yielding 7%, and none of that growth would be attributed back to the lender – a great strategy if the other person earns less (or nothing).

The interest actually has to be paid once a year, taxable as income in the hands of the lending partner. But it’s 100% deductible from investment gains for the borrower. The same sweet deal does not apply to gifting assets (like ETFs or other financial securities), since they’re deemed to be sold when transferred, and may be taxable. But cash is good.

The wrinklie advantage
Getting old sucks less when you can use your squeeze to chop pension tax. The law allows you to split 50% of eligible pension income with a lower-taxed spouse, including money coming from a registered pension plan as well as RRSPs and RRIFs for people over 65. You can also share CPP payments – a nice boost if one spouse stayed out of the workforce for years raising a family. In that case the pension payments would be made equal, potentially cutting overall tax.

See? It’s not all about free sex or finding someone who can cook. It’s also financial. What a turn-on.

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May 6th, 2018

Posted In: The Greater Fool

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