Tax avoidance

One day, years ago, I was minding my own business when the PMO called. “The prime minister wishes to see you this afternoon,” a voice said. Four hours later I was sitting on a floral couch looking down on the Ottawa River gorge drinking tea from bone china served by a dude in gloves.

So the next day I trotted off to Rideau Hall and was sworn in as Minister of National Revenue, which I thought was cool because I got a car and driver. My euphoria ended when I met the deputy minister, a career civil servant who apparently hated taxpayers. Revenue Canada, the thing I was now running with 18,000 employees, seemed to delight in hounding and harassing people, neither of which were producing more revenue.

So I decided to do two things. First, read the Income Tax Act. That way no civil servant would bamboozle me with a, “yes, minister..” routine. But the damn thing was half a foot thick. Second, I’d declare a tax amnesty, so anybody who actually owed money could come forward, pay up, be thanked, and not slapped around with fees and penalties.

See why I made such a lousy politician?

The point of this pointless story is to admit I actually got a little off on the tax code. And to this day I still spend enjoyable hours reading CRA Interpretation Bulletins. In fact, understanding how you’re taxed – and how to avoid it – is probably more important that learning how to invest. I know medical professionals, for example, who earn $400,000 a year and will never pay a cent in income tax. They game the system.

But what does this have to do with the poor schmuck who owns a house and lives a normal life? Plenty. Here’s a question from Phil:

Garth, first thank you for all the advice. Your ‘non-cowboy’ post a week or so ago was particularly valuable.

Over the last few years I built my own home in downtown Ottawa. I think its value is peaking, but I’m going to stick with it since it’s home and tailor made. However, I have a rental property I think I will dump…Anyway, the question:

How can you deduct mortgage interest from your taxes? I’ve noticed you hint that it’s possible, but you’ve never explained. There are two scenarios in my case: first is my primary residence and the second is an income property.

Let’s deal with the rental property first. Any time you own real estate which is 100% income-producing, all of the interest is deductible from that income. Of course, this also means you have to pay capital gains tax on any money made when the place is sold. But it’s still a good deal. Rental income is considered the same as earned income, which means it’s taxed to the max – added on to your personal income, often kicking you into a higher tax bracket.

So being able to deduct interest is a significant benefit. This is also a reason you never want to accelerate mortgage payments on a rental property. As for the capital gain, it’s far less than most people think – the tax is only on 50% of the windfall, calculated at your marginal rate. So, for example, if you sell a place and make $50,000 in profit, and you earn $70,000 then the capital gains tax is 33% of twenty-five grand, or just $8,250. You keep the other $41,750.

So how about a tax-deductible mortgage on the house?

There are a few ways I know. Probably the simplest is for people who have both a mortgage and a portfolio of liquid investments. First, liquidate your investment assets. Then use the cash to pay off your home loan. Now negotiate a new mortgage for the same amount, but this time I’d take out a long-term fixed-rate home loan with a higher rate. Two reasons for this – rates have only one direction in which to travel, plus you get to deduct more interest from your taxable income.

Use the proceeds of your new mortgage to repurchase the same assets you owned before in your investment portfolio. And, voilà, now you have a totally tax-deductible mortgage. You also have maintained your investment account, which means you’ve diversified your net worth, instead of concentrating it in one thing. Risk off.

If your new mortgage is 4% on a $300,000 borrowing you’ll be able to deduct $55,838 over the next five years from your taxable income. This amounts to more than half of all the mortgage payments combined. Meanwhile your investment portfolio can continue to grow, and at a 7% annual rate it will have increased about 50% within those same five years.

Will this strategy make ya rich? Of course not. But it sure beats paying your mortgage out of after-tax dollars, or dumping all your wealth into your house and rolling the dice on the real estate market. What danger there is lies in not having a balanced, non-cowboy investment portfolio.

Oh yeah, or getting elected.

175 comments ↓

#1 TurnerNation on 10.24.12 at 9:24 pm

Noted, a disturbing trend on yesterday’s weblog. A quick Ctrl-f search for: ‘smok’ soon revealed 14, of 200, Blog Dogs’ posts mentioning Smoking Man. This, on the eve of Garth’s live event.

Extrapolating…if SM held his own event ~140 people would be in attendence?

#2 T.O. Bubble Boy on 10.24.12 at 9:31 pm

First, liquidate your investment assets. Then use the cash to pay off your home loan. Now negotiate a new mortgage for the same amount, but this time I’d take out a long-term fixed-rate home loan with a higher rate.

Are there any restrictions on the type of “new mortgage”?

For example, does it matter if it is variable rate or fixed? Is there any difference between a mortgage vs. a HELOC for tax deductability?

No difference fixed or VRM. Mortgage can get you a greater LTV and it’s non-callable. — Garth

#3 Rainman on 10.24.12 at 9:34 pm

numero uno! Dr. Wayne

#4 25Alpha on 10.24.12 at 9:36 pm

What about carney not raising interests rates? A whole lot of VR mortgage carriers breathed a sigh of relief.

Then they need to get out more. Of course rates were not going up this time. — Garth

#5 ChickenLittle on 10.24.12 at 9:40 pm

woohoooo!! I’m number 20!! I am a relatively new reader to this blog. Could someone explain in a non-judgemental way what “non-cowboy” means? I understand the context, but I would like a wee bit of clarification!
Hi Smokingman! I really enjoyed your last post. I could actually make out a few sentences….

#6 ChickenLittle on 10.24.12 at 9:41 pm

Wow.. I really was early!!

#7 Smoking Man on 10.24.12 at 9:44 pm

YYZ Terminal 1 should be a cartoon.

Zillions of flights, High speed walk thing. And f-en One door out.

Bad enough I had and elbow war for 4 hours with a jerk on the flight back from Vegas.

Why are people so fkd on planes. I demanded my wife give me cheese and crackers. She absolutely refuses, 30 years she knows me better.

When cheese hits my belly it’s like a compressed air canister goes off, pressure building, takes about 10 min. My pant size goes up 4 sizes. Then all that needs to happen is to get someone to pull my finger and boom. I nuke the elbow warrior right out of the plane. Next time I bring my own cheese.

So we are all smile as we walk past all the track 6ers in line at customs. Get my Retina scanned NEXIS and I am home free, racing to the exits to satisfy my cells with nicotine they are demanding it NOW, NOW, NOW!!!.
A shocker; when we get to the last stage where you hand in the customs form.

Get this, 1 stinking guy collecting them, 3000 people lined up to give 1 boarder guy, one door the papers. An Emeritus flight just landed, that’s 700 right there. Buy my calculations 45 minutes .

The art of lying kicks in, Chapter 1 in my book.
I walk right to the front of the line wife in toe (wife is looking at her shoes, she knows what’s coming, she knows better than to piss off my cells ) and say, this is an emergency, just made this flight, a loved one is about to be on their death bed, would you mind, would any one mind, I am talking 20 people back.

Ah, I love Canadians,

Go ahead sir. Hurry and good luck they say. Even the ONE border guard gives me a good luck tap on the shoulder.

I never said a loved one is on their death bed, I said a loved one about to be on their death bed.
My dad is 95, my mom is 90. It’s an art.

The art of lying kids, works for my cells.

#8 Not 1st on 10.24.12 at 9:45 pm

Garth, dodging taxes on $100,000 income is pretty straight forward, but on $400,000 seems a like stretch. Are these people using corporations or something?

http://www.theglobeandmail.com/globe-investor/investment-ideas/strategy-lab/dividend-investing/you-do-the-math-almost-50000-in-earned-dividends-0-in-tax/article4599950/

Yup. — Garth

#9 Old Man on 10.24.12 at 9:46 pm

The Tax Act is a complex re

#10 LJ on 10.24.12 at 9:46 pm

I liked your idea about putting your mortgage into your RRSP and paying yourself interest… Is there any way to finagle this into a TFSA?

#11 lee on 10.24.12 at 9:48 pm

I think garth meant 50 percent of 50000 times 33 per cent is 8,250 or so

#12 EIT on 10.24.12 at 9:49 pm

“In fact, understanding how you’re taxed – and how to avoid it – is probably more important that learning how to invest.”

Awesome

#13 bogie on 10.24.12 at 9:51 pm

33% of 50,000 is 16,500, so you get to keep only 33,500 unless I’m missing something here

cheers,
B.

It is 33% of $25,000. — Garth

#14 jan on 10.24.12 at 9:51 pm

Sorry, its half of the 50 geez, got it.

#15 Smoking Man on 10.24.12 at 9:52 pm

#1 TurnerNation on 10.24.12 at 9:24 pm

Noted, a disturbing trend on yesterday’s weblog. A quick Ctrl-f search for: ‘smok’ soon revealed 14, of 200, Blog Dogs’ posts mentioning Smoking Man. This, on the eve of Garth’s live event.

Extrapolating…if SM held his own event ~140 people would be in attendence?
……………………………………………………………

You stats guys, ah…………………………..so much to learn

Reality 8 people tops

#16 MC on 10.24.12 at 9:52 pm

Garth, wasn’t there an idea floated around a few years ago that dividends re-invested into Canadian corps would not be taxed. Is this true? I know only of the dividend tax credit in place now.

#17 Investx on 10.24.12 at 9:57 pm

Vancouver realtor, featured in that September CBC real estate segment Garth was also in, has dropped the price of that property again.

Now $1,348,000 from $1,373,000.

http://www.ecorealtyinc.ca/listing?id=259754658

#18 Old Man on 10.24.12 at 9:59 pm

The Tax Act is a complex read, and very few will go through the nightmare, but I did years ago, as those people in Ottawa working in this area have no clue at all, so did a target scenerio to educate myself within certain areas to beat the Tax Man. You would be in a state of shock as to what you can do avoid taxation, as too much is hidden, and Garth is giving too much away lol.

#19 Casual Observer on 10.24.12 at 10:01 pm

Don’t forget to wait 30 days before re-purchasing any investments that you are claiming a capital loss on, otherwise your loss will be disallowed.

#20 Mic D'angelo on 10.24.12 at 10:03 pm

Leverage or borrowing to invest is not a great investment strategy because investors take it too far and then something happens like murphy knocking on your door (trouble) happens and then what. It all sounds so easy and not risky but borrowing money to invest, using margin or leverage is a real recipe for most investors, even if you have a balanced portfolio it will not always work short or long term. Too much debt is what is killing the world economy and peoples lives. People do not make great investment decisions with their own money advisor help or not. I would not do it and if you do good luck, P.S. it only works for big corporations, banks, mortgage companies etc.

#21 JL on 10.24.12 at 10:10 pm

Garth, sounds like you are explaining the Smith Maneuver. Sounds great on paper but you should mention the risks involved. Like if or when the market tanks and their investments are now worth a lot less but they still have to continue to pay/service the loan they have taken out to buy the portfolio. Leverage in real estate or investing can be a dangerous thing.

The SM does not work. And I did mention the risk. — Garth

#22 T.O. Bubble Boy on 10.24.12 at 10:27 pm

Least surprising headline of the day: Flaherty and Harper will not be balancing the budget. ever.

http://www.theglobeandmail.com/news/politics/ottawas-long-term-debt-plans-shelved/article4649919/

Obviously, today’s “Conservative” does not have any relation to being “fiscally conservative”.

#23 Smoking Man on 10.24.12 at 10:33 pm

Gartho my accountant whom I pay a sht load too, don’t think he knows this stuff. Going to ask him. if he draws a blank stare and wants to go for beers on my card.

Reluctantly I may make an appointment with you and broom him.

#24 Old Man on 10.24.12 at 10:34 pm

Please discount #9 as my Sheltie pup jumps up on my home office desk to play computer on me, and loves to hit the keyboard when I am not paying attention, so should I spank her?

Would she like to edit my blog? — Garth

#25 kreditanstalt on 10.24.12 at 10:36 pm

With all those hoops to jump through and all that rigmarole to cope with just to keep your OWN money, it’s no wonder fewer and fewer people want to engage in productive economic activity in socialist Canuckistan…

MUCH easier just to speculate, either in the markets or on real estate. Or “buy” gold.

#26 Smoking Man on 10.24.12 at 10:47 pm

It’s amazing how the force works, what made me talk about death bed previous post. I could have told that story next week.

My future daughter in law walks with my son, they came in after in after the post, I show it.

sht I’m barging about my YYZ post, she’s a fan. Laughing and asking about the Gratho Show.

Not two min later she gets a call.

Mom calls her, says her Ant is on death bed.

Not 5 min later she gets the call. Ant died.

They leave for hospital, I head to rye. Damn I feel bad now.

Never under estimate the force. and Grim.

Why do I share this sht.?

#27 Burnt Norton on 10.24.12 at 10:51 pm

#7 Smoking Man on 10.24.12 at 9:44 pm

Wow, lying about a deathbed family member just to jump a lineup? No wonder you drink heavily.

#28 Guy_in_Regina on 10.24.12 at 11:09 pm

“I know medical professionals, for example, who earn $400,000 a year and will never pay a cent in income tax. They game the system.”

Yeah, but they still consume all the services paid for by other people’s taxes. Great…

#29 THE CELIAC HUSBAND on 10.24.12 at 11:14 pm

One thing I learnt about living in different countries. the bigger the taxes, the bigger the loopholes.

France is by far one of the highest taxed places in Europe. And yet, the exemptions are plenty. Just gotta ask.

#30 HDJ on 10.24.12 at 11:23 pm

That half a foot thick Income Tax Act is a shameful contrivance designed to favour the wealthy. If through gaming the tax act medical professionals you know can avoid paying income tax on an income of $400,000, the system is corrupt. And let’s not pretend that the tax loopholes and gaming schemes exist because they somehow encourage growth of the economy. It’s all about rich guys in parliament who created a tax system that would benefit themselves and their wealthy friends.

#31 alien88 on 10.24.12 at 11:23 pm

Gartho,

Further to your thesis:

http://www.theglobeandmail.com/life/home-and-garden/real-estate/burnaby-luxury-home-sale-takes-a-3042000-hit/article4623788/

#32 Nancy on 10.24.12 at 11:32 pm

“First, liquidate your investment assets. Then use the cash to pay off your home loan. Now negotiate a new mortgage for the same amount, but this time I’d take out a long-term fixed-rate home loan with a higher rate. Two reasons for this – rates have only one direction in which to travel, plus you get to deduct more interest from your taxable income.

Use the proceeds of your new mortgage to repurchase the same assets you owned before in your investment portfolio. And, voilà, now you have a totally tax-deductible mortgage. ”

There’s something missing in there. If you start with a mortgage and a bunch of investments, and end with a mortgage and a bunch of investments, I don’t get how paying off mortgage #1 with the investments, negotiating mortgage #2, and then buying the investments back gets you anywhere. You’d just incur a bunch of fees. I think you are missing a step or some crucial piece of info.

#33 Jim on 10.24.12 at 11:35 pm

#29 HDJ,

You are entirely correct. Like “free trade” agreements and other legal instruments, tax regimes are largely cobbled together to suit the needs of special interests. Tax is often used as an instrument of policy (e.g., left wingers are fond of this). However, it is pretty easy to rig tax statutes, leave loopholes, etc. Not to mention all the other nice legal devices that were really invented to serve the wealthy.

#34 OlderbutWiser on 10.24.12 at 11:39 pm

Smoking man – #7 – your actions are indicative of your strength of character. Enough said – what goes around comes around.

LJ – #10 – you can only deduct interest on money borrowed to earn TAXABLE income. Since income earned in a TFSA is not taxable, then interest paid on any loan to acquire assets in a TFSA is NOT deductible for tax purposes.

MC – #16 – Dividends that are reinvested under a DRIP are currently taxable. The amount reinvested will increase your tax basis in the shares. There is currently no rollover treatment available.

#35 george on 10.24.12 at 11:40 pm

Profiting from the end of the world

#36 AACI homedog on 10.24.12 at 11:41 pm

The way i understand it, if you earn $400k a year and want to minimize your taxes, you are probably incorporated as a limited company, and drawing a salary at the upper limit of the lowest tax rate. The remainder goes to the holding company, and is a potential tax bomb in the future, similar to rrsp funds. You may invest it, but do not have full access to the money. Comments, Garth ?

#37 OlderbutWiser on 10.24.12 at 11:45 pm

HDJ – #30 – you have obviously not read the ITA and are spending too much time listening to the MSM. It does not favour the wealthy. It does heavily tax the employed with essentially no deductions available to reduce earned income – such as commuting costs, meals etc. Doctors are generally self employed and are able to deduct many more costs that the average working stiff cannot. But they have more risk and costs as well.

#38 smarter than terry on 10.24.12 at 11:50 pm

nice pic! F looks like he is hunkered over that hole from the previous picture

#39 Carpe Diem on 10.24.12 at 11:59 pm

Interesting …

I suck on the investment part but love the taxation rules and howto reduce taxes paid. I guess I have part of the equation right.

Carp

#40 JSS on 10.25.12 at 12:01 am

That’s one nasty pic

#41 Snowboid on 10.25.12 at 12:04 am

As I perused the latest listings, this property on Ethel Street in Kelowna caught my eye.

Only $ 249,000 for a SFH: http://tinyurl.com/EthelStreet

For comparison, here is what you can get for the same price in a good area of the NW valley of Phoenix:

http://tinyurl.com/BlackhawkDrive

The same house in Kelowna two years ago would have likely been $ 349,000 and the Glendale home $ 200,000!

#42 MD Medical Doctor on 10.25.12 at 12:07 am

We doctors have a right not to pay taxes. We spent 26 years in school so we deserve it. We also lobbied the government so we can become corporations so we don’t pay tax. If anyone tries to make us pay taxes we will get rid of medicare and go to a private model where you will pay a lot more. There is going to be a doctor shortage because we made sure we restricted the number of people who could get a medical education. We also took an Oath you lowlifes!

#43 OlderbutWiser on 10.25.12 at 12:07 am

Nancy – #32 – the most important fact from an income tax perspective is the use of the borrowed funds. Mortgage #1 was used to acquire a house (not a rental property) which is not a qualified use of funds since there is no income being generated from the home. You have to actually repay this loan (by using cash from selling your investments) and then borrow under mortgage #2 and use these funds to acquire the investment assets. You are correct that at the end of the day you are in the same place but how you get there (use of borrowed funds) is vitally important to the tax consequences (i.e. deductibility of loan interest).

#44 MrHulot on 10.25.12 at 12:08 am

That’s the look you get when Santa asks you to work in his workshop.

#45 Kelowna down 5 years in a row on 10.25.12 at 12:14 am

DA I heard Oct is another bad month for prices.

#46 Tito Santana on 10.25.12 at 12:17 am

MSM story yesterday said 16 percent homeowners could not afford to keep house if rates rose . Point being: this is scary. Wow. Appraisal guy I know who has 30 plus years experience thinks prices will hit 2005 levels in many areas. Think most people are becoming aware of what’s to come.

#47 john on 10.25.12 at 12:20 am

Garth, what are your thoughts on a flat tax (pure or with exemptions)? I’ve always personally thought it was a great idea but it doesn’t seem to be implemented in any western nations, outside of some states and provinces.

#48 Chaddywack on 10.25.12 at 12:25 am

Just make sure that the investments either pay dividends or interest. If the only thing you’ll get out of them is capital gains the interest won’t be deductible.

Yes it is. — Garth

#49 LS in Arbutus on 10.25.12 at 12:26 am

#32 Nancy – Garth’s not missing a step.

Subparagraph 20(1)(c)(i) of the Income Tax Act requires that the interest expense sought to be deducted be on “borrowed money used for the purpose of earning income from a business or property.”

The finding of the purpose for the use of borrowed money will be a question of fact.

Bottom line, to make interest deductible for tax purposes you need to show that money borrowed was used to buy an investment, where you earn income.

In the first case, you took a mortgage, but it was to buy your principal residence. As this money was not used to earn investment income, the interest on the mortgage is not tax deductible.

In the second case, he took the cash he had, (from selling the investments) and he bought the house outright. Then he took a mortgage on the house to buy the investments back. Because in this case the money was borrowed to earn income (dvds, interest) then the interest on the mortgage is tax deductible.

You are correct that you end up in the same position, it’s just that you have structured the transaction to be onside with the income tax act.

You do need to be careful with this that there is a clear traceable transaction from borrowing the money to the purchase of income producing assets (investment portfolio, rental property, etc.).

See IT-533 Interest Deductibility – particularly paragraphs 9-14.
http://www.cra-arc.gc.ca/E/pub/tp/it533/it533-e.html#P122_10420

This also assumes, that, you will make a return on the investments greater than the amount of interest you are paying on the mortgage.

I would do this only if you have a good investment adviser and good tax accountant.

#50 Gunboat denier on 10.25.12 at 12:28 am

I’ve never made 400 large in a year, but I make enough
that a corporation is worthwhile. And I still pay tax. It
does however help smooth out the bumps of earnings
that can be up or down over time.

8 Not 1st – the tax rates are rigged so that the small
business corp dividend tax rate is roughly equal to
having drawn the equivalent wage.

#51 Grim Reaper/Crypt Speculator on 10.25.12 at 12:39 am

I thought an Amazon entourage was tax deductible…

#52 Mic D'angelo on 10.25.12 at 12:48 am

#20 I made a mistake it is a real recipe for disaster for most investors using borrowed money to invest. I was in a hurry so it slipped my mind and did not edit my work. Don’t do it you will be regretting it all your life.

#53 smartalox on 10.25.12 at 12:52 am

I love the updated pic, Garth!

So with F shelving the long-term debt plans, does this mean that all the Conservatives’ election promises that were contingent on the Government eliminating the deficit by 2015 are shelved to?

Anyone got a list of what Canadians will be missing out on?

Also, just two months ago, the Government gave notice its deficit was less than half of what was projected – and everything was rosy. If the tide has turned this far this quickly, we may already be on the slippery slope.

Excellent analysis here, by guys who know what they’re talkingn about: http://www.3dpolicy.ca

#54 shanks on 10.25.12 at 1:07 am

Daisy Mae
Not legally reneg but if the only option is to go there and him it’s not really practical. I will what ebay says but it’s not like he has the item and the money

#55 Devore on 10.25.12 at 1:22 am

#7 Smoking Man

That’s some classy grade a douchebaggery right there. What are you looking for? Admiration? Pats on the back?

#56 Sam I Am on 10.25.12 at 1:27 am

AACI Homedog – #36 Corporate taxes are already paid on the money in a holding co. And you don’t have to wind it down after a certain age like a RRSP. You can take the money as a dividend or through a family trust. Shouldn’t be nearly as much tax as a RRSP.

#57 JMONEY on 10.25.12 at 1:35 am

#32 – I think what Garth is getting at is the following:

1) liquidate investments to pay off mortgage that is incurring non-deductible interest assuming you are living in the house. If you are renting the property out than you are earning income from the property and thus can deduct mortgage interest.

2) borrow against your house to repurchase investments – because the proceeds from this new loan are being used to generate income from property, the interest is deductible.

Garth’s point about paying a higher interest rate makes no sense to me though… Agreed that the tax savings will be greater, but they will be overshadowed by the higher interest payments. You will pay more in interest than you will save in tax.

Stick to real estate Garth…

#58 bluethunder on 10.25.12 at 1:51 am

CRA, The Tax Act and income tax should be abolished.
Time for a major change.
http://www.fairtax.org

#59 dosouth on 10.25.12 at 1:57 am

#28 Guy – The rich get richer and can afford to hire the guy/gal to find these loopholes. They also get paid by our tax dollars. There is no winning at this game…. IMHO

#60 Blacksheep on 10.25.12 at 2:17 am

Burnt Norton # 27, OlderbutWiser # 34,

“They leave for hospital, I head to rye. Damn I feel bad now.”

“Wow, lying about a deathbed family member just to jump a lineup? No wonder you drink heavily.”

I’ve learned to not take the author of the SM chronicles ™ too seriously. While the writings can fluctuate from entertaining, to downright disturbing, one must remember its a work of fiction and as such, has no real need for concern.

take care
Blacksheep

#61 Rob now in Nova Scotia on 10.25.12 at 3:00 am

@#32 Nancy: the difference is that the interest you pay on a residential home mortgage is not tax deductible in Canada but putting your money “at risk” by investing it in the stock market is tax deductible. If you are a wise investor, you have capital gains as well and capital losses if your portfolio drops in value whereas you’re SOL if your house drops in value. Garth leaves out the fact that interest rate for a loan taken to invest in the stock market is generally higher than a mortgage because the loan is unsecured unless you want to put your house up as collateral. The strategy is great if you have enough money to pay for your house with cash.

#62 Tony on 10.25.12 at 4:08 am

Re: #32 Nancy on 10.24.12 at 11:32 pm

The idea is to take out a loan from a family member at a lower rate than you’d pay at the bank. If you’re a lawyer or are friends with lawyers get it written up for free. Watch out for the superficial loss rule when selling and buying back within 30 days.

#63 Buy? Curious? on 10.25.12 at 4:51 am

Garth, it looks like there are 3 types of people in this country, those that are betting on housing being a good investment , those that are betting that the economy is going down and OTHER investments are good investments, and the third, guys who know how to get rid of spiders. The first two groups are ridged in their beliefs, backed by a mountain of stats and can paraphrase any yahoo they interview on CNBC or ROBTv. You can’t change them until their bets go bad. They will panic like wilder beasts a second too late before noticing a pride of lions leaping from the long grass. Then there is the smallest of minorities that win regardless. You join my group and it’s like being the first person on your street to put in a 12 person hot tub. “Come on in! The Party is getting Hotter!” as you clutch two Champagnes bottles in your fists. Just know hope, for your families’ sake, that you’re right.

At least the ride is going to be funny.

http://www.youtube.com/watch?v=wBCmt_pJTRA

#64 Canuck Abroad on 10.25.12 at 5:00 am

Interesting article on how some homeowners have become “mortgage prisoners”. This is a UK story, but I can see how it might happen in Canada too.

http://www.bbc.co.uk/news/business-17829409

#65 Thor on 10.25.12 at 5:22 am

#32 Nancy

Nothing is missing there, the whole premise for liquidating the investments to pay the mortgage and then re advancing the loan is to create a bullet proof bonafide money trail that proves that you just purchased investments with borrowed money. The CRA allows deduction of interest expenses on revenues in a non registered account but mortgage interest is not directly deductible like our American friends down south. This structure basically benefits the lucky few that already amased a substantial investment portfolio to begin with by reducing the taxes owing on these investments revenues by first deducting the mortgage interest, personal exemption, and finally dividend tax credits.
Those living from pay cheque to pay cheque all their lives who did not think of putting away 5% towards savings and the next generation that are debt saddled with that sense of entitlement that don’t even care to save, don’t have a chance.

#66 Deb on 10.25.12 at 6:01 am

First, that is the most chilling photo I have ever seen on this blog. Absolutely chilling.
Second, I have learned that Canada does indeed have three official languages: English, French, and the Income Tax Act.

#67 John on 10.25.12 at 6:44 am

Thor wrote:

“Those living from pay cheque to pay cheque all their lives who did not think of putting away 5% towards savings and the next generation that are debt saddled with that sense of entitlement that don’t even care to save, don’t have a chance.”
———-

This assumes stability, solvency and a continuance of th same game of “boom bust capitalism” that went on in earnest since 1945. Unfortunately for your analysis, you have left out almost everything that reflects what’s going on right now.

Pull the “don’t have a chance” nonsense out for pensions, currencies, asset values, derivatives-based “money” supply, non-representative western governments, currency wars, trade wars, real wars, oil wars, unsustainable economic “unions” being taken over by central banks, the smash-up of the family, total absence of any sane main-stream media, the end of relevant education, emerging class strife, a “casino” style investment scenario,and a fascist merger of state and corporate interests.

Your “omission” of the actual playing field with such simplistic and child-like analysis is almost as myopic as believing “liquidity” will “save” you. It’s extraordinarily unconscious and delusional thinking.

Your in the koolaid drinkers brigade.

Even with reality up on the table, “don’t have a chance” is just irresponsible fear-mongering.

A guy who just bought a house at the top of the market with no savings, who has woken up to reality,has far more of a chance than someone who’s drunk on koolaid, hiding behind a ponzi playing card stack.

#68 Cow Man on 10.25.12 at 6:45 am

Amigos:

Not only does Garth fail mentioning the in and out fees on sale and repurchase of the investment portfolio, he also fails to mention the tax on the sale of the original investment portfolio. Any time one invests to avoid taxation they lose. Diversification into to lower taxed securities is just fine. Don’t try to out smart the CRA.

If you employ a fee-based advisor, there should be no ‘in and out fees’ on the liquidation and repurchase of a portfolio. As for capital gains tax on investments, the rate is low and crystallization has to occur sometime. Not strong points. — Garth

#69 House on 10.25.12 at 7:09 am

I guess the 5% ers and cash back crowd won’t be taking advantage of interest deduction. If you had investments and a house at the start with a house loan and now have investments and a house and an investment loan, how does this make you more diversified?

That was clearly stated: “It sure beats paying your mortgage out of after-tax dollars, or dumping all your wealth into your house and rolling the dice on the real estate market.” — Garth

#70 Tkid on 10.25.12 at 7:17 am

Lol at the photo!

#71 dradak1 on 10.25.12 at 7:38 am

#42 MD Medical Doctor on 10.25.12 at 12:07 am

“… We doctors have a right not to pay taxes. We spent 26 years in school so we deserve it. We also lobbied the government so we can become corporations so we don’t pay tax. If anyone tries to make us pay taxes we will get rid of medicare and go to a private model where you will pay a lot more. There is going to be a doctor shortage because we made sure we restricted the number of people who could get a medical education. We also took an Oath you lowlifes! …”

With all respect but you didn’t took Oath to the money – you took Oath to help humans and your occupation is highly respected but doesn’t give you right to assault others.
More over you do not understand that if everybody pay there share – tax will be much lover for 99% where most of us belong.
Also you have to understand that every occupation is important – medicine will not be where it is if others didn’t do there part i.e. computer science. ;-)

#72 Ralph Cramdown on 10.25.12 at 7:39 am

What’s with the pic of Karl Malden?

#73 Eaglebay - Parksville on 10.25.12 at 8:19 am

#71 dradak1 on 10.25.12 at 7:38 am

RE: #42 MD Medical Doctor on 10.25.12 at 12:07 am

Seriously?
I guess sarcasm isn’t your forte.

#74 Ottawa Renter on 10.25.12 at 8:22 am

Thanks for this post, Garth. I would be interested in reading more about taxation avoidance. Real estate, at this point, is getting a bit redundant.

#75 Victor on 10.25.12 at 8:29 am

http://ca.finance.yahoo.com/news/bank-canadas-carney-says-rate-044858723.html

Carney said on Wednesday that the need to hike rates in Canada was “less imminent,” but stuck to his message that the next move would be up, not down, in contrast to the U.S. Federal Reserve and other major central banks.

The Canadian economy has fully recovered from the 2008-09 recession and is expected to grow at a little more than 2 percent through to 2014, justifying an eventual rate hike, but global headwinds remain a threat to the trade-dependent country.

“There’s no question that what we will do, taking all these factors together, is manage policy so that interest rates rise at an appropriate pace,” Carney told Sun News Network in an interview to be broadcast Thursday at 6 p.m. (2200 GMT).

#76 TurnerNation on 10.25.12 at 8:29 am

#24Old Man

Err I did find this fellow online – the disapproving moderator dog:

http://www.quickmeme.com/meme/3qn69k/

#77 Dave on 10.25.12 at 8:54 am

Great article and excellent advice.

One strategy that I would also suggest to those people with rental properties is the “Cash-Flow dam”. Very simple strategy to implement. Rather then using your rental income to pay for your rental property expenses (mortgage, insurance, taxes, etc) use a line of credit to pay these expenses with borrowed money. Voila!!!! The interest paid on this credit line is now tax deductible for as long as you have the property.

Now, what do you do with the rental income? Use it to pay down your non-deductible debt (principal residence mortgage). This is an effective strategy I have been using for a little over 3 years. Totally allowed under CRA.

#78 BillyBob on 10.25.12 at 9:22 am

enough of “smoking man” already, this guy suffers from a narcissistic personality disorder and takes up to much space on this blog, I am beginining to wonder if it is his blog by the number of his inane posts

#79 Canuck Abroad on 10.25.12 at 9:38 am

I think what Mr Pompous, MD is referring to is a professional corporation.

http://www.gardiner-roberts.com/documents/articles/Tax%20Advantages%20of%20Physician%20Professional%20Corporations.pdf

This structure is available to many other professions which do not require “26 years in school” including accountants, architects and engineers. So the doctor did not get his tax break because he is special, smarter, or indispensable to society. As he himself stated, he got it because his industry lobbied the government. Anyone who takes issue with this inequity should contact your MP.

http://www.corporationcentre.ca/docen/pinc/home.asp?t=incpr

Garth, out of curiosity could an equity and options trader incorporate themselves and get this sweet deal as well?

#80 Herb on 10.25.12 at 9:49 am

#26 Smoked Man,

“Why do I share this sht.?” Darned if I know, but if you do come up with a reasonable explanation, pass it on.

#81 Bigrider on 10.25.12 at 9:56 am

#7 Smoking man -”when cheese hits my belly, it’s like a compressed air canister goes off, pressure building, takes about 10 minutes”

The problem is actually occurring in your colon ,although the reactive process necessary to get the flatulence occurring in the first place does begin in the stomach.

I think you can nip the problem in the bud, so too speak, with a thorough regimen of colonics and coffee enimas ,unless of course, you enjoy having the problem in the first place.

As for the wife not giving you cheese and crackers.. eat a couple of hundred grams of cracker barrel before retiring to bed and tell her you will get even with her after she is asleep..LOL

#82 Dupcheck on 10.25.12 at 9:59 am

So you need to pay off your home and then borrowing money to invest and deduct the interest from the taxes.

It seems to me that it applies to the rich, the well off, or the older generation. They are the ones that have such investments and money to pay off a mortgage completely. They new pups not so much.

It is is not like the US where anyone can deduct the mortgage interest from the taxes.

Anyhow good information to know how the wealthy take advantage of the system, because they can and they know they can.

Since when is someone with a $300,000 portfolio ‘wealthy’? You’ll learn. — Garth

#83 cell phone on 10.25.12 at 10:03 am

hi garth

we recently sold our house. closing end of December.
lost money on it but wife doesn’t like the area and it was a custom build. anyhow, we will have about 800k to invest a nd looking to rent for who knows how long. what would be a good monthly rental amount that could be covered by the investment so we are living rent free?
we looking to rent something around 2300 Sq ft plus. they’re going for around 2200 in our area. What sort of return can we get on the 800k?

thanks.

Get an advisor. – Garth

#84 Herb on 10.25.12 at 10:05 am

#23 Smoked Man,

don’t get the impression I’m picking on you, but what kind of a financial genius and super-cheat are you if anything Garth has said here about taxes would be news to you – or your accountant?

#85 Susan London Area on 10.25.12 at 10:06 am

#42 MD Medical Doctor
Is this guy for real? Took an Oath well you should read it then, it’s about you serving fellow man, not calling them low lifes. I’m a farmer for gawds sakes try them shoes on for a while. Feed the world and alot of times can’t even feed yourself. Give your head a shake man.
Am I being punked or what?

#86 Smoking Man on 10.25.12 at 10:07 am

#60 black sheep

Cant beilive i always need to spell it out.

In the world 3 types of people

The criminal
The business man
The people that go to back of the line.

The criminal= the guy who just buds in.
The business man= power of suggestion . deal excepted . they let you in. You did not lie. All parties happy.
The back of liners= tax farm slaves.

Perhaps my in crypited messages are too complex for some in this crowed.

#87 P.Eng on 10.25.12 at 10:11 am

#42 MD Medical Doctor

To the MD character: You have an attitude worst than a car salesman. Maybe you do not deserve the MD title, you should be ashamed of yourself. You went to school for the wrong reasons. Real doctors have pride in their mission which is humanity and respect to human life first, then the stinking money you so much crave and bow to.

P.S. I am a P. Eng, PHD, and went to school for 28-years by the way, since you started flexing your muscle to other people here. Work and life experience can be even more important than school years.

#88 unbalanced on 10.25.12 at 10:21 am

When I first read the heading Tax Avoidance I thought the discussion would be no other than the Honorable Brian Mulroney. Remember him ? He gets cash, gets caught and receives an award.

There’s nothing illegal about being paid in cash. And he remitted his taxes voluntarily, did he not? — Garth

#89 Steven Rowlandson on 10.25.12 at 10:38 am

Taxation sucks Garth! Why doesn’t government just print up some cash and invest it in all that paper you are so proud of and operate off the earnings, lay off the tax collectors and slash spending and function as a self supporting organization. Leave the people to their own devices or the attention of the provincial politicians.
It would be alot cheaper and less of a bother.

#90 45north on 10.25.12 at 10:45 am

HDJ: That half a foot thick Income Tax Act is a shameful contrivance designed to favour the wealthy.

it is stupid but I don’t think it’s designed to favour the rich

I went to the funeral of a colleague. His wife had spent her career working for CRA. She had argued to keep the form simple and easy to understand. She lost the argument. Too bad for her. Too bad for us.

A lot of it has to do with the courts. Somebody, anybody can challenge a ruling. In the court room there are only a handful of people. The court makes a decision that is subsequently studied and reviewed by high-powered experts at CRA. They in turn make more rules, the whole thing becomes incomprehensible. A victimless crime.

One of the most obvious simplifications would be to drop the provincial form. There didn’t use to be one. The provincial form asks very similar questions as the federal form, and has very similar calculations. Obviously a separate provincial form requires provincial civil servants whose jobs and positions depend on it.

#91 Daisy Mae on 10.25.12 at 11:02 am

#85 Susan:

“#42 MD Medical Doctor
Is this guy for real?”

******************

Nope!

#92 Peter on 10.25.12 at 11:06 am

@ #42 MD Medical Doctor

“We doctors have a right not to pay taxes. We spent 26 years in school so we deserve it.”

Are you including kindergarten?

#93 Southern Ontarian on 10.25.12 at 11:11 am

How does what is being suggested differ from the “Smith” Manoeuvre?

No mutual funds or systematic withdrawal. Smith did not invent deductible mortgage interest. He’s a mutual fund guy. — Garth

#94 Spiltbongwater on 10.25.12 at 11:13 am

There’s nothing illegal about being paid in cash. And he remitted his taxes voluntarily, did he not? — Garth

LMAO, are you series? Apply that logic to anybody else and if the cash for work is not declared in the same calander year it was earned, how would that not be tax evasion?

Not defending. Just a statement of fact. Cash is still legal tender. And he apparently paid without prompting. He also admits to an error in judgement which has destroyed his personal reputation. — Garth

#95 Coraline on 10.25.12 at 11:14 am

“I know medical professionals, for example, who earn $400,000 a year and will never pay a cent in income tax. ”

This is exactly what has been going on in Greece for years, but we Anglos think we are superior to the lazy, cheating Mediterranean types. It doesn’t matter if it’s legal, it breeds contempt and is quietly corrosive of the social order.

#96 Smoking Man on 10.25.12 at 11:14 am

#84 herb

Not news just two of us have issues with booze. When i read it last night waz a bit fuzzy. Today clicked in oh ya ……..

#97 };-) aka D.A. on 10.25.12 at 11:18 am

Canadians get a pay raise
by The Canadian Press – Story: 82323
Oct 25, 2012 / 6:25 am

Statistics Canada says average weekly earnings of non-farm payroll employees rose to $907.19 in August, up 0.4 per cent from July.

It says earnings were up 3.6 per cent on a year-over-year basis, reflecting a number of factors, including wage growth and a slight increase in the average number of hours worked each week.

Year-over-year growth in average weekly earnings outpaced the national average in three of the largest industrial sectors. Those were professional, scientific and technical services, accommodation and food services and construction.

In the professional, scientific and technical services, average earnings were up 7.4 per cent to $1,273.60. Meanwhile, earnings increase five per cent to $374.54 in accommodation and food and increased 4.4 per cent to $1,144.43 in construction.

Average weekly earnings in administrative and support services declined 3.2 per cent to $724.03 on an annual basis.

Earnings of non-farm payroll employees increased in every province in the 12 months to August.

by The Canadian Press – Story: 82323
Oct 25, 2012 / 6:25 am

http://www.castanet.net/news/Business/82323/Canadians-get-a-pay-raise

More money with which to buy houses?

Prices are going up and that pulls wages up – cost push price pull.

#98 Herb on 10.25.12 at 11:19 am

#88 Garth’s comment,

sure, but how many years after the fact, and how long before Schreiber threatened to go public?

Apply the same standards to everyone. — Garth

#99 Form Man on 10.25.12 at 11:37 am

#97 DA

house prices will continue to fall until MOI is below 6………

#100 Suede on 10.25.12 at 12:20 pm

#31 Alien

That house has been on and off the market for 3 years. Started off with an asking price of $25M

In Burnaby.

Next to a freezing lake.

With traffic in every direction.

Notable Burnaby Michaels (J.Fox and Buble) couldn’t afford that asking price.

RiDQlous

#101 jose on 10.25.12 at 12:20 pm

best picture so far :)

#102 Bottoms_Up on 10.25.12 at 12:24 pm

#22 T.O. Bubble Boy on 10.24.12 at 10:27 pm
————————————————
You mis-read the article, they plan to balance the budget (eliminate the deficit) but in terms of paying off Canada’s debt (~600 billion), well, now, that target has been pushed back. Not really news, really.

#103 Bottoms_Up on 10.25.12 at 12:27 pm

#42 MD Medical Doctor on 10.25.12 at 12:07 am
—————————————————
Go get a job you unemployed bum.

#104 karl hungus on 10.25.12 at 12:28 pm

garth you say to not accelerate your payments on a rental so you can claim more interest deductions. What about making your mortgage payments higher so you claim little or no profit?

#105 Blacksheep on 10.25.12 at 12:31 pm

Smoking mans author # 86,

“In the world 3 types of people”

“The criminal”
“The business man”
“The people that go to back of the line.”
————————————————
So which one am I ?

I suggest some Sun Tzu, as you assume to much,

Sir or Madame.

take care
Blacksheep

#106 Bottoms_Up on 10.25.12 at 12:31 pm

#30 HDJ on 10.24.12 at 11:23 pm
————————————–
Yep, the system is seriously broken when someone earning $400,000 pays $0, while someone earning $60,000 pays $20,000.

#107 KommyKim on 10.25.12 at 12:34 pm

When I first read the heading Tax Avoidance I thought the discussion would be no other than the Honorable Brian Mulroney. Remember him ? He gets cash, gets caught and receives an award.

There’s nothing illegal about being paid in cash. And he remitted his taxes voluntarily, did he not? — Garth

Yes, but it is illegal to bring 100K in cash across the border and not declare it. Besides getting paid 100K in cash is a little suspicous don’t you think?

#108 Bottoms_Up on 10.25.12 at 12:35 pm

#90 45north on 10.25.12 at 10:45 am
—————————————-
Rome ended up burning through a series of small decisions that at the time were perceived to be prudent but that when summed up were disasterous.

#109 Ret on 10.25.12 at 12:50 pm

Deducting interest from rental income is for suckers.

Plan B
Buy property. Put rent money, cash only please, in pocket.

While the CRA loves to run over people for $50 in unclaimed interest, hundreds of slumlords around McMaster U rent multiple properties to 6 to 10 students and put $20-30,000 of rents in their pocket fron each property. It has been going on for years. Hundreds of properties are advertised as having student room rentals on every university and college website. When will the CRA connect the dots on this?

Apparently the CRA prefers soft targets. That means you!

#110 Herb on 10.25.12 at 12:54 pm

“Apply the same standards to everyone. — Garth”

I do, Garth – except for politicians, of whom I expect a higher standard on the assumption that they’re in business for the common good, not for themselves.

He was not a politician when he received the money. — Garth

#111 Old Man on 10.25.12 at 12:54 pm

Doctors in Canada do not make that much money as compared to USA, as they have a restricted income, and the average MD who does not specialize has a net income which would surprise you. There are exceptions with those that specialize in Canada and the biggest winner is a Dermo, as a lot of their fees must be paid by the patient. In USA there are doctors making $millions, but not in Canada.

#112 smartalox on 10.25.12 at 12:57 pm

@107: Mulroney didn’t bring the cash he got from Schreiber in a New Yor hotel room across the border. He took it straight to a safe deposit box in NYC, and left it there. His daughter, attending Harvard at the time, travelled to NYC, took the cash from the safe deposit box, and used it to pay her tuition. There was no paper trail, until Schreiber spilled the beans.

Say what you will, but the man is no dummy.

#113 Smoking Man on 10.25.12 at 12:58 pm

#105 black sheep.

You are some where between 2 and 3

Another angle.

The criminal = tax evator
The business man = tax avoider
The people that go to the back of line.= screwed

#114 unbalanced on 10.25.12 at 1:25 pm

To # 94. Thankyou spiltbongwater. Well said.

#115 Old Man on 10.25.12 at 1:30 pm

#24 Old Man – Garth my 3 year old puppy will gladly take up your editing job, and her per diem rate is a modest $200 an hour with a months paid vacation, and all expenses paid including meals. Now overtime will cost you more, and wants Saturday and Sundays off, and demands a good benefit plan, as well, as she is a member in good standing with the doggy union.

Must be a Canadian bitch. — Garth

#116 zeman1 on 10.25.12 at 1:46 pm

Garth, if I was Prime Minister there would be a 15% flat income tax with no exemptions , ever, for anything.

Your thoughts?

#117 Blacksheep on 10.25.12 at 1:58 pm

Smoking mans author # 113,

“You are some where between 2 and 3″
—————————————
Of course I am.

Clearly…you do know it all.

“All war is deception” Sun Tzu

take care
Blacksheep

#118 Toronto S on 10.25.12 at 2:12 pm

#111 Old Man

Yes, we have Doctors making millions in Canada. Radiologists in Ontario, cataract surgeons in Ontario (the groups the goverment is now rightfully targeting). Many surgeons easily make a million as well. Ontario Pathologists have a MINIMUM salary of $360K guaranteed (!) by the Ministry of Health regardless of experience, and they don’t even have to see patients. Trust me, the ones that work hard and/or specialize are definitely not hurting.

#119 Old Man on 10.25.12 at 2:27 pm

There is a big story in Toronto, as two high level doctors, husband and wife, will be auctioning off all contents and their home with Ritchies this Sunday worth $millions, as want a new nest to buy. The big event will occur at 2:00 PM at 6 Park Lane in the Bridle Path, and the home alone has been listed since March at $5.7 million; viewing starts at 11:00 AM.

The land amounts to one hectare; the home in question is old, so the real value is in the land. This should be a great event just to see this all, and predict the big money will be there to buy this home, for the land value only, and it will be torn down.

#120 GM on 10.25.12 at 2:40 pm

Re: Deducting mortgage interest. I don’t think it’s quite that simple.
You can only deduct the interest portion from the borrowed monies that you used to invest. Not all of the interest.
Re: using a corporation to save on taxes.
That’s all fine and dandy, but in order to get the money out of the corporation you need to pay yourself. Which means paying income tax. It’s delayed which is a huge advantage of course. But, its not useful for people in low tax brackets.

When a borrowing is taken to use for investment purposes, all interest is deductible. — Garth

#121 a prairie dawg on 10.25.12 at 2:44 pm

So why can’t you own your revenue property inside an Incorporated Company with yourself as the CEO. Taxable revenue and Capital gains would be lower to a business, yes?

You could pay yourself lower, or no, initial dividends if you were already working another job, and wanted to keep your taxes down.

Then just “raise your salary” from the corporation after you quit working, or if you want to bump up your income.

And this income should be taxable as dividend income, and therefore the dividend tax credit would apply. (just like your non-cowboy portfolio)

Only about 1 or 2 grand to have a lawyer set it all up, I’ve been told.

Thoughts?

A corp can pay dividend income to the owner only after corp taxes have been paid in full. The combination of the corporate tax and personal tax payable, even when income is received as dividends, is equal to taxable profits taken fully as personal income. But nice try. — Garth

#122 Old Man on 10.25.12 at 2:52 pm

#119 Toronto S – I get my stats from the Human Resources and Skills Development Canada, and have no idea what you are talking about, as they detail what doctors are earning in Canada for a general MD and those that specialize. So I will stand firm on my major premise.

#123 };-) aka D.A. on 10.25.12 at 3:11 pm

#99Form Man on 10.25.12 at 11:37 am
#97 DA

house prices will continue to fall until MOI is below 6………

So in other words Form Man what you are saying is that the demand for Central Okanagan real estate is such that prices forced to drop until such time as at the supply end there are but approximately 550 strata units and 1,000 single family residential units actively available for purchase.

Is there no latitude afforded for the fact that 60% of the 1,333 strata units and 2,050 single family units, while on the market, are not actually IN the market because they are priced too high by unmotivated sellers and their listing will either expire or be cancelled without having garnered even a hint of interest from the buying public? I can show you statistics which will prove to you that approximately 30% of listing expire without a sale and another 30% are cancelled by sellers who give up hope of their lofty expectations. Given these facts, while you may call it SPIN, I would suggest to you that we are already in effect below that 6 months real inventory you speak of whereby the supply demand equation will alleviate any further downward pressure on prices. Only 40% of that which is listed is actually ON and IN the market. The rest may be ‘on’ but it sure as hell ain’t ‘in’ and not a consideration of buyers other than making those properties ‘on’ and ‘in’ look like bargains.

#124 Buy? Curious? on 10.25.12 at 3:18 pm

Funny how with today’s picture no one asked the one question that’s on everyone’s mind.

Does the carpet match the curtains? Can someone say Selsom Blue?

#125 Pr on 10.25.12 at 3:46 pm

“If you wish to be a success in the world, promise everything, deliver nothing.”
-Napoleon Bonaparte

#126 full-up on 10.25.12 at 3:47 pm

 He also admits to an error in judgement which has destroyed his personal reputation. — Garth

Oh please “error in judgement” my ass. You are telling me “a lawyer”, “a Prime Minister” , “a man with YEARS of experience in the public system” takes $350,000 dollars cash in the PM’s office in a brown paper bag. Then sues the government for millions and receives a settlement. That’s not an error in judgement, it’s called a kickback! Wake up fool. The country needs to place that prick in jail!

He did not take the money while in office. He was not PM. There was no bag. He did not sue related to this issue, but regarding Airbus accusations. — Garth

#127 Form Man on 10.25.12 at 3:56 pm

#124 DA

The number of homes on the market divided by monthly sales yields MOI. If monthly sales increase and number of homes on the market stays steady, then MOI will decrease. It is quite simple math really.

Interestingly, home prices in the U.S. have now begun to increase….just as MOI as dropped from 12 months in 2010 to 6 months today. Given that Kelowna’s MOI is around 17, we have a ways to go yet…….

A quick search of OMREB or CREA websites will explain this formula in more detail. As a realtor you would be well advised to familiarize yourself with some of the free info that is provided by the real estate associations…..

#128 Pt Bob on 10.25.12 at 4:03 pm

Looked up tax amnesty and Canada is not listed on Wikipedia. Any online info of interest as its time to come clean! http://en.wikipedia.org/wiki/Tax_amnesty

#129 Mt pleasent on 10.25.12 at 4:07 pm

D.A.
My question is to you. You seem bullish on the kelowna RE.
me and my girlfriend are looking to buy a rental there something very modest with possibility to live there in the future.
i am wondering why there are so many houses that are empty on mls also why they are asking below assessment?
We have been looking for about a year i see houses on mls that were for sale last march.

#130 Derek R on 10.25.12 at 4:26 pm

#58 bluethunder on 10.25.12 at 1:51 am wrote
CRA, The Tax Act and income tax should be abolished.
Time for a major change.
http://www.fairtax.org

What? and replace a bad tax by a worse one? No way! If you’re going to replace income tax replace it with the least bad tax – Land Value Tax!

#131 Bottoms_Up on 10.25.12 at 4:37 pm

#124 };-) aka D.A. on 10.25.12 at 3:11 pm
——————————————–
Since no agent would tell a prospective buyer all of this face-to-face, what is your cyberspace recommendation for buying? To lowball any prospective seller, or only shop from those listings that appear to be very competitive? Are you suggesting that most transactions occur in favour of the sellers (i.e., that most buyers are overpaying)?

#132 TakingResponsibility on 10.25.12 at 4:42 pm

“Any time you own real estate which is 100% income-producing, all of the interest is deductible from that income.”

I submit that the above is not always true.

Say Smith owns his first home (mortgage-free) and chooses to build/buy with the assistance of a mortgage a much bigger and more expensive home.

Smith also decides to rent out his first home.

Smith moves his mortgage on his banker’s advice to his first home. Why? The banker helpfully states his mortgage interest will be tax deductible.

Unfortunately, CRA says no.

Oddly, if Smith were to sell his first paid off home and buy another; then that mortgage interest is deductible.

CRA = ???

#133 Old Dad on 10.25.12 at 4:44 pm

DA:

You are full of crap. The houses being held off the market are overhang. Only a fool would believe, or try to make someone else believe that a house taken off the market or one that didn’t sell means that the market is going Up! Up! Up!

And what is this BS difference B/W “On the market” and “In the market”? Utter crapola. Using your analogy, Bill Clinton did not have sex with Monica Lewinsky because he was not “On and IN” at the same time.

#134 Bottoms_Up on 10.25.12 at 4:45 pm

#123 Old Man on 10.25.12 at 2:52 pm
———————————–
If you look for it you can find it — some doctors in Canada CAN and DO make in the range of a million dollars. It’s not ‘capped’ as you suggest. It’s based on amount billed to OHIP (in Ontario), minus overhead. An average physician will bill $350,000, but then obviously makes less once expenses and taxes are factored in. But don’t be fooled — there are some physicians billing over a million. Like I said, you can find the stats on this if you look.

#135 jess on 10.25.12 at 4:55 pm

Imagine unraveling the documents in a fraud /liar loans or offshore shell cases! Bad auditing

“Aside from the fact that the criminal gang charged up to AU$3500 for a variety of fake documents the authorities are now investigating various business owners who were allegedly paid anywhere between AU$300 and AU$500 for each relevant signature on the documentation. It is almost impossible for the authorities to review every individual application over the last five years..”

Fraud case regarding Mr. Raines.
21 Sep 2012 –123 witnesses; some 67 million pages of documents have been produced in the matter.

New York — Counties across the United States are discovering that illegal or questionable mortgage paperwork is far more widespread than first thought, tainting the deeds of tens of thousands of homes dating to the late 1990s
25,000 had suspect signatures. The earliest date to 1998, says John O’Brien, the registrar of deeds thereJohn O’Brien, Register of Deeds for the Southern Essex District in suburban Boston, has uncovered 38,000 fraudulent documents that have been recorded in his office. O’Brien said an outside audit revealed only 16 percent of the assignments in his registry are legitimate.

“Totally fraudulent. The signatures are fraudulent and the information in some of the documents are fraudulent and they knew this. The banks knew this and the attorneys who processed this know it,” O’Brien said

http://www.nakedcapitalism.com/2012/02/quelle-surprise-san-francisco-assessor-finds-pervasive-fraud-in-foreclosure-exam-and-paul-jackson-defends-his-meal-tickets-yet-again.html

omg! o’leary will scream!
the slogan “Tax us. Canada’s worth it.”Doctors for Fair Taxation are proposing new surtaxes that would tax any income over $100,000.People who earn between $100,000 and $170,000 would pay an extra one per cent on the income between those two figures and income between $170,000 and $640,000 would be subject to an extra two per cent levy…
http://doctorsforfairtaxation.ca/

#136 Julia on 10.25.12 at 4:56 pm

#104 karl hungus on 10.25.12 at 12:28 pm said garth you say to not accelerate your payments on a rental so you can claim more interest deductions. What about making your mortgage payments higher so you claim little or no profit?

Higher mortgage payments are going straight to paying off your principle so you are in effect paying yourself. You can’t claim that on your taxes.

#137 Canadian Watchdog on 10.25.12 at 5:07 pm

Many plan to sell real estate to fund retirement Link

Sell to who?

#138 JL on 10.25.12 at 5:08 pm

Garth when you do your overview of Kelowna can include your interpretation of the difference of the crash in 86/87 to 2008/9 and now? That would be awesome!!!

#139 dradak1 on 10.25.12 at 5:11 pm

“… #79 Canuck Abroad on 10.25.12 at 9:38 am …”

Right on!

#140 dradak1 on 10.25.12 at 5:13 pm

“… #85 Susan London Area on 10.25.12 at 10:06 am

#42 MD Medical Doctor
Is this guy for real? Took an Oath well you should read it then, it’s about you serving fellow man, not calling them low lifes. I’m a farmer for gawds sakes try them shoes on for a while. Feed the world and alot of times can’t even feed yourself. Give your head a shake man.
Am I being punked or what? …”

That’s right Sus.

#141 dradak1 on 10.25.12 at 5:18 pm

“… #87 P.Eng on 10.25.12 at 10:11 am

#42 MD Medical Doctor

To the MD character: You have an attitude worst than a car salesman. Maybe you do not deserve the MD title, you should be ashamed of yourself. You went to school for the wrong reasons. Real doctors have pride in their mission which is humanity and respect to human life first, then the stinking money you so much crave and bow to.

P.S. I am a P. Eng, PHD, and went to school for 28-years by the way, since you started flexing your muscle to other people here. Work and life experience can be even more important than school years.
…”

Nicely stated – congrats!!!

#142 Elchavo on 10.25.12 at 5:35 pm

what a disturbing picture. I will have nightmares tonight.

Where have all the sexy pics gone?? I remember that one with the European girl riding her bicycle, showing her nalgas. That was a wicked blog entry ;-)

#143 Brad in Calgary on 10.25.12 at 5:36 pm

When a borrowing is taken to use for investment purposes, all interest is deductible. — Garth

except if the investment is a RRSP, of course

#144 Old Man on 10.25.12 at 5:57 pm

#135 – Bottoms_UP – am fully aware that some 407 doctors in Ontario did billings for over $1 million out of thousands, so lets call for independent audit to investigate this all, as why are they so special?

#145 HD on 10.25.12 at 6:03 pm

#5 ChickenLittle on 10.24.12 at 9:40 pm
woohoooo!! I’m number 20!! I am a relatively new reader to this blog. Could someone explain in a non-judgemental way what “non-cowboy” means? I understand the context, but I would like a wee bit of clarification!
Hi Smokingman! I really enjoyed your last post. I could actually make out a few sentences….

——————————————————————-

A non-cowboy portfolio is a portfolio that doesn’t contain individual stocks yielding 12% with dubious balance sheets.

When Garth refers to a non-cowboy portfolio, he essentially means a diversified low-risk portfolio that generates a decent yield.

Best,

HD

#146 jess on 10.25.12 at 6:44 pm

In a 4-3 decision, the New York State Supreme Court ruled that strip club lap dances are not forms of art like ballet, and thus strip club revenue can be taxed. The majority of judges on the court found that lap dances don’t have “the evident purpose of promoting cultural and artistic performances in local communities,” and thus cannot be exempt from taxation like other art forms. The strip club that lost the lawsuit, Nite Moves, is considering an appeal to the Supreme Court.
Wednesday, 24 October 2012 14:07 By Jim Javinsky, The Thom Hartmann Program
==
oh la la
Colbert presented Trump with a counteroffer: let Stephen Colbert dip his balls into Donald Trump’s mouth by 5 pm on October 31st, and $1 million goes to the charity of Mr. Trump’s choice.

#147 CalgaryRocks on 10.25.12 at 6:51 pm

#8 Not 1st on 10.24.12 at 9:45 pm
Garth, dodging taxes on $100,000 income is pretty straight forward, but on $400,000 seems a like stretch. Are these people using corporations or something?

http://www.theglobeandmail.com/globe-investor/investment-ideas/strategy-lab/dividend-investing/you-do-the-math-almost-50000-in-earned-dividends-0-in-tax/article4599950/

Yup. — Garth

I don’t understand how you can get to 0%. You still need to pay corporate taxes then taxes on the dividends above a certain level (depending on whether these are qualifying or not, the level will change).

Somebody enlighten me,

#148 Gypsy Kid on 10.25.12 at 7:04 pm

#42. Medical Doctor.
Wow. What a jerk. Are you stoned on your own meds by any chance???

#149 Devore on 10.25.12 at 7:09 pm

#128 Form Man

Yes, it’s very curious how time after time, market after market, MOI correlates with price movement, but in Kelowna, laws of economics don’t apply. High MOI just means lots of unrealistic sellers who are not serious about selling, and has no impact on sales prices.

DA, if your house is on the market for a year, vacant, you’re a serious seller, regardless of how ridiculous your price is. Prices fall, until the market clears again. That’s what high MOI is.

#150 Smoking Man on 10.25.12 at 7:12 pm

#146 HD on 10.25.12 at 6:03 pm

Hey HD welcome to MY blog.

Has no one told you that the bad speeling is actually in crypt-ed numerical algos, with the right de-crypter the secrets of the universe are revealed.

#151 Snowboid on 10.25.12 at 7:13 pm

#128 Form Man on 10.25.12 at 3:56 pm…

Here are the September stats from a small (similar population to the Central Okanagan) city in the west ‘Valley of the Sun’:

September property sales were down 21.1% from September of 2011 (listings down 22.6%).

The median sales price in September was $166,500, up 28.1% from September of 2011.The average sales price in September was $194,789, up 28.0% from September of 2011.

September 2012 MOI of 2.6 months was at its lowest level in almost six years. DOM for September was 36, down 43.8% from September 2011.

As far as Kelowna, for all we know there are thousands of people who are ‘thinking’ of selling – maybe using the gold standard of RE agents’ logic they should be included in MOI – that would probably put it at 24-25!

#152 Old Man on 10.25.12 at 7:27 pm

Ok see this room is trashing the MD’s because they are making the big bucks, and have no idea why. Do you really want to know who in the area of Health Care who is making the big money? It is the Dentists that are pulling in the big money – bigtime!

#153 OlderbutWiser on 10.25.12 at 7:32 pm

# 133 TakingResponsibility – the issue is the USE of the borrowed funds. You used the borrowed funds to build a personal residence not to acquire the rental property. USE of funds is vital to success. You cannot simply say, well I have a mortgage and I have an investment property so I “should” be able to deduct mortgage interest. Not going to work.

That is the issue with effective tax planning – you have to cross your T’s and dot your I’s.

#154 Paul on 10.25.12 at 7:37 pm

#124 };-) aka D.A. on 10.25.12 at 3:11 pm

You said you were selling soon. Is it listed?

#155 CalgaryRocks on 10.25.12 at 7:48 pm

#153 Old Man on 10.25.12 at 7:27 pm
Ok see this room is trashing the MD’s because they are making the big bucks, and have no idea why. Do you really want to know who in the area of Health Care who is making the big money? It is the Dentists that are pulling in the big money – bigtime!

And vets. Especially in Alberta.

#156 Al on 10.25.12 at 7:55 pm

157Al on 10.25.12 at 7:55 pm
CP24 had their usual RE Agent; Al Sinclair on the Real Estate show today and he said that it is cheaper to buy a home than rent it in Toronto – no proof provided. He must think we are all fools.

#157 Gunboat denier on 10.25.12 at 8:05 pm

“A corp can pay dividend income to the owner only after
corp taxes have been paid in full. The combination of the
corporate tax and personal tax payable, even when
income is received as dividends, is equal to taxable
profits taken fully as personal income. But nice try.” —
Garth

Hey thats what I said @50. But you said it better.

And I bet you rigged it that way.

#158 Old Man on 10.25.12 at 8:11 pm

#156 CalgaryRocks – this would not surprise me in the least as in 1968 was in Vegas at a Casino by the pool, and met this cowboy, so said what do you do for a living? He said he no big deal as shoe horses for a living, and said what do you charge for this service, and said $100 which was big money. Now he gave me a warning about his daughter that I was messing with at the casino pool, and said she is off limits or we will have a problem.

#159 TurnerNation on 10.25.12 at 8:15 pm

This despicable weblog hit a new pictorial low today!

(Lower lows. We have a trend.)

#160 Smoking Man on 10.25.12 at 8:18 pm

Ok not good.

Vlad less here for 2 days now,

Vlad where are you?

#161 Daisy Mae on 10.25.12 at 8:21 pm

“Second, I’d declare a tax amnesty, so anybody who actually owed money could come forward, pay up, be thanked, and not slapped around with fees and penalties.

See why I made such a lousy politician?”

**********************

Well, perhaps. You were an honest, compassionate man and obviously it has no place in the dirty world of politics.

Small wonder the institution disgusts most.

#162 TRT on 10.25.12 at 8:34 pm

OLD MAN:

Dentists are con-artists!

If you ever get a cavity filling, you basically gave that tooth a death sentence. The filling has too be removed every X years, the tooth further mutilated and a new filling inserted. This ends in a root canal…then implants and dentures. Do the Math!

Ethical Dentists are a minority. they leave a tooth alone until necessary to get a filling. The Majority of Dentists just use ur plan ro get rich!

#163 RyYYZ on 10.25.12 at 8:38 pm

#106 Bottoms_Up on 10.25.12 at 12:31 pm:

You think the system’s broken because the majority of the tax burden falls on the middle class? I (being the cynical type I am) would say it’s working exactly as it’s supposed to.

#164 Daisy Mae on 10.25.12 at 8:47 pm

He’s just a jerk.

He is not a doctor. Or even a close facsimility…

#165 Daisy Mae on 10.25.12 at 8:50 pm

#149Gypsy Kid on 10.25.12 at 7:04 pm
#42. Medical Doctor.
Wow. What a jerk. Are you stoned on your own meds by any chance???

*****************

My reply was in response to this poster. Sorry.

#166 Awesome on 10.25.12 at 8:54 pm

Gotta love the self righteous MDs and/or the people trying to pretend they are MDs. Also with reference to other professionals billing high amount ie. dentists and vets. There are so many hours in a day and only so much one person can bill per patient. If they stray from the normal amount and are my specialists… You have to question what’s really going on. With computer systems advancing with billing and revenue Canada’s ability to find out everything you do financially the futureis risky for those individuals avoiding the rules. It’s tough to practice your profession behind bars ;)

#167 };-) aka D.A. on 10.25.12 at 9:11 pm

#130Mt pleasent on 10.25.12 at 4:07 pm
D.A.
My question is to you. You seem bullish on the kelowna RE.
me and my girlfriend are looking to buy a rental there something very modest with possibility to live there in the future.
i am wondering why there are so many houses that are empty on mls also why they are asking below assessment?
We have been looking for about a year i see houses on mls that were for sale last march.

If a home is priced in line with the market it will sell. An intelligently priced home will sell within 50 days for closer to 98% of its list price. Aggressively priced homes tend to take longer than 100 days to sell and when they do for closer to 95% of their asking price. Overpriced homes never sell until the seller gets real on the price and by then it has gone stale and must be offered below market to garner the attention of a prospect buyer.

I see no more vacant homes on the market than usual.

As I mentioned, overpriced homes will languish on the market indefinitely. And as I mentioned to Form Man in an earlier posting of all the homes on the market today 30% the listings will expire without a sale and 30% the sellers will give up. Of the remaining 40% just 20% will sell within 50 days for closer to 95% of their list price the other 80% of that 40% will take more than 100 days and sell for closer to 95% of their asking price.

#132Bottoms_Up on 10.25.12 at 4:37 pm
#124 };-) aka D.A. on 10.25.12 at 3:11 pm
——————————————–
Since no agent would tell a prospective buyer all of this face-to-face, what is your cyberspace recommendation for buying? To lowball any prospective seller, or only shop from those listings that appear to be very competitive? Are you suggesting that most transactions occur in favour of the sellers (i.e., that most buyers are overpaying)?

My best advice for a buyer is to hook up with an agent who will be patient and help them gain a good understanding of where the market really is. Take enough time that the buyer can and will confidently be able to reasonably ascertain the value of the home to them. By the time this process is complete there will be a home or two they may have missed out on but that is a part of the education process – trust me there will be more to choose from.

Once the buyer is comfortable with their understanding of the market really having a good grasp of what is a good deal and what is a ridiculous price they should search out three properties to put on their short list. Once they have decided on those three it is time to make offers. In making an offer never be afraid to make an offer of what you think it is worth to you. That does not mean make a ridiculous offer of what you would like to get the home for but what you would be willing to pay, leaving a bit of room to negotiate up. It’s always nice to make your agent work hard to negotiate the best deal that way you know you didn’t leave any money on the table. If the deal does not happen you move on to choice number two. You can have two offers out there that you are working concurrently but that is something you should leave to a professional. You can actually do three concurrently but that is something most professionals, including me, would advice against.

Most transactions neither party pays too much nor sells for too little provided both are ready willing and able to do the transaction neither being under undue influence to buy or sell. Transactions that complete are the truest determination of ‘market value’ so it would be incongruous to think otherwise. Of course there does exist both ‘buyer remorse’ and ‘seller remorse’, which you would be surprised to see how prevalent both are, and how it can make one regret having either bought or sold.

#150Devore on 10.25.12 at 7:09 pm
DA, if your house is on the market for a year, vacant, you’re a serious seller, regardless of how ridiculous your price is. Prices fall, until the market clears again.

Wrong. You are not a serious seller until you are motivated enough to accept what market prices are and price your property accordingly. Or have enough money you just don’t give a damn – in which case you lack the motivation then too and are not a serious seller either.

But I like your Bill Clinton analogy

#168 Hawk on 10.25.12 at 9:31 pm

50 Gunboat denier on 10.25.12 at 12:28 am

=======================

Would there still be an advantage in taking out money as dividends as opposed to salary if the amount of tax paid is roughly the same, but then one avoids paying CPP?

#169 Hawk on 10.25.12 at 9:34 pm

#59 dosouth on 10.25.12 at 1:57 am

========================

The best and also fairest system is to have a flat tax and no exemptions for anyone, except the base minimum exemption per person earning an amount to low to tax.

#170 AACI Okanagan on 10.25.12 at 9:39 pm

#124 };-) aka D.A. on 10.25.12 at 3:11 pm
——————————————————–

DA put down the bong… seriously you are losing it.. SPIN

#171 Gunboat denier on 10.26.12 at 12:39 am

169 Hawk – the answer would be yes if you figure the CPP benefit received is worth less than the contribution. With the new contributions peaking at close to 10% (of which you as both the employer and employee would
pay) this may be the case.

#172 Steven Rowlandson on 10.26.12 at 8:34 am

Since nobody responded to my posting I must assume the majority of people love being taxed and collectively put in to debt by government. Isn’t masochism a mental disorder? What a crazy world this is.

#173 disciple on 10.26.12 at 10:40 am

No Smoking Man, here are the categories:
1. criminal
2. “legal” criminal
3. silent victims
There is a fourth category: 4. non-silent victims, but they are quickly silenced and become either a category 3 or dead.

#174 disciple on 10.26.12 at 10:41 am

Ann Romney, like her fake husband, Mitt, is a fake character played by the same actor who played Blondie. Be thus informed. Bottoms Up, you make me laugh, you are so stupid it hurts…

#175 Chris on 10.26.12 at 3:39 pm

#17 Investx on 10.24.12 at 9:57 pm
Vancouver realtor, featured in that September CBC real estate segment Garth was also in, has dropped the price of that property again.

Now $1,348,000 from $1,373,000.

http://www.ecorealtyinc.ca/listing?id=259754658
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Another place down the street just dropped from $2.22M to $1.88M. (For a 2281 sq ft duplex)

http://www.realtor.ca/propertyDetails.aspx?propertyId=12518323&PidKey=-246019742