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February 17, 2019 | The winners

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.

The top federal tax rate in the US is 37% and doesn’t click in until income soars past $500,000. In Canada, combined with provincial tax, folks making over $220,000 pay up to 54%. Of course some states (California, NY, for example) have high state taxes so ‘wealthy’ people in fact give over half their income in taxes. But some states (like Florida) have no local tax. So the rich stay that way.

Of course, Americans can deduct a portion of their municipal taxes and even mortgage interest from federal tax payable. There’s no HST. Mortgage rates are locked in for 30 years, but fully open to be negotiated lower if the cost of money falls over that time.

What about health coverage? Just over 91% of Americans are covered. The vast majority of those have health care plans subsidized in whole or part by employers. For those who pay their own, the average premium is about $800 per month for a family.

Capital gains? Here 50% of the profit you make selling an asset is added to taxable income. So for most people the tax would be between 15% and 20%. For 1%ers, it rises to a max of 27%. In the US gains on stuff you owned for a year or less are taxed as income. If the gain is on something held longer, the rate is 0% for people making about $40,000 or less and 15% for those earning up to $425,000.

So, Americans pay less tax. Wealthy ones hand over considerably less. More people in Canada have health care, but many critics say medical services here are rationed, as evidenced by long wait times and the fact it takes years to be assigned a family doctor in most locations.

But what about incomes?

The median family income in the States is $59,040 – that’s $78,200 in beaver bucks. The median income here is a little over $71,000.

And housing? The average house in Canada sells for $455,000, says CREA. In the US the median price (averages are elusive) is $253,600 – or $336,300 Canadian. The median price in Chicago, for example (population 3 million) is $228,500. The average in Toronto is $748,300 (that’s $564,900 US$).

So, as you can see, fish and bicycles are not easily compared. However Canada and the US have two of the most similar economies on the planet, in which people make about the same amount but in which governments act quite differently. Canada has a debt of $690 billion while Washington owes $22 trillion. Americans spend $639 billion a year on defense. We spend $25 billion. Retired people in the US receive an average of $1,422 a month in social security (that’s $1,910 Canadian). The average in Canada for CPP and OAS combined is $1,226.

The big winner among Canadians in the Tax Sweeps are couples with kids. The Canada Child Benefit is significantly richer than the US equivalent (the Earned Income Tax Credit) which fizzles out by the time family income hits the mid-$40,000 range. In contrast here’s how much our families collect, and how the current T2 government has enriched this tax-free freebie.


This program took effect in the summer of 2016 and costs $22 billion a year, a massive transfer of wealth to people with children, considering that 40% of Canadians pay no net federal income tax. There are no strings on this cash – families can spend it on anything from the mortgage, to day care to a new car or a Vegas vaca. This unconditional approach makes some people wonder why the government pays people to have children, but not necessarily to raise them.

Well, what’s the point of this post?

Simply to remind that there are but 10 days left to make an RRSP contribution in order to reduce 2018 taxable income. If you’re one of households that actually do pay tax, and especially if you’re in the top 10% of income-earning families that carry a disproportionate amount of the load, do it. This is the only tax shelter which benefits the wealthy more than the wanting. Incomes of around $140,000 and beyond generate over $26,000 per year in RRSP room – and that can be deducted 100% from taxable income.

Remember that RRSPs are tax-shifting beasts. Use them to reduce tax during the good years, then draw them down during the lean (sabbatical, job loss, maternity leave, training, screw-this-I’m-off-to-Morocco etc.). You can use a spousal plan to dump your contribution room into the plan of a less-taxed partner, reducing family tax. Existing assets may be used to make a contribution in kind. Yes, get a refund for selling yourself stuff you already owned. You can borrow money to put into an RRSP, use the refund to pay down the loan, creating wealth from nothing. And all growth within the plan happens sans tax of any kind.

Why would you not wish to do this? Unless, of course, the government gives you more than you pay. Hopefully you are filled with remorse.

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February 17th, 2019

Posted In: The Greater Fool

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