Entries from December 2017 ↓

It’s time

Those on the left see government as the solution. On the right, it’s viewed as the problem. Most moisters are lefties. Most wrinklies aren’t. People without wealth want big taxes (on others) and more services. The affluent want to keep more of what they made, and think penalizing success is moronic.

So in a world where income disparity is widening, we have conflict. Righties and tax-cutters currently rule America. Lefties and tax-hikers reign here. Taxes, spending and the size of government in Canada have all bloated lately. The T2 government believes this is what its base wants, and voted for. Probably correct. With a federal election in 2019 pitting Justin against Jagmeet for the same demographic, the less-government crowd could be squished. Let’s see how young Scheer deals with that.

In the meantime, strap a bandana on your forehead, smear on the face camo and grab a carbine. The resistance, she is here.

Sick of being milked? There are dozens and dozens of actions individuals and families can take to reduce, shunt, defer, avoid or escape tax – all of which are completely legal and, if widely known, would seriously twist socialists’ shorts. So I am begging you, do not circulate this post. If captured, deny it. If tortured, we never met.

Herewith, Ten Things the PM Does Not want You to Know:

< 1 > You can get free money to educate your children simply by opening an RESP using cash the government sent you because you have children. The guaranteed return on investment is 20%, which beats buying a semi in Toronto. The rules allow you to go back and make up missed contributions (collecting the grant a year at a time), and if your kid becomes a rock legend instead of a dentist most of the tax-free growth can be wrapped inside your RRSP.

< 2 > If you think income-splitting is kaput, you’re mistaken. You and your lower-income squeeze have a plethora of ways to starve Mr. Socks. If you make more money, pay your spouse’s taxes so s/he can invest at their lower tax rate. Ditto for the household expenses. You can certainly open a spousal RRSP, writing off the contribution against your high taxes but making the money the property of your less-taxed spouse. Open a joint investment account, splitting taxable gains instead of paying them at your fat rate. And lend your spouse money to invest at the CRA’s proscribed and silly rate of 1%. So long as s/he pays you interest (tax-deductible) no money made by the investments will be attributed back to you.

< 3 > Next week, Tuesday, max your TFSA contribution for the year – which is $5,500. Do not put your tax-free account money into a HISA or a GIC or anything else [email protected] suggests. She’s seductive but toxic. Instead insist on a healthy mix of growth-oriented, equity-based exchange traded funds, then resist the urge to diddle with them every time markets gyrate. Remember that when you retire your bloated TFSA will generate a steady stream of cash flow to fund your life, and not a sous will be counted as taxable income. No OAS clawback. Take that, Billy!

< 4 > Speaking of tax-free accounts, your accumulated limit for 2018 will be $57,500. Starting to be serious money, especially when a couple can double that. So don’t just fill up your own TFSA, gift money to your spouse so s/he can do that same. None of the gains will be attributed back to you for tax purposes. Also, if you trust your adult children (Warning: they could be commies), then fund their accounts as well – no attribution, but you may have to use force at a later date.

< 5 > Don’t forget the registered retirement account, either, which is actually more of a tax deferral device than a way to fund your later years. RRSP room jumps with your income, so it’s of greatest benefit to those old, rich, high-earning guys that everyone currently hates. Revenge. Sweet. Having a ton of RRSP room sure helps if you get a retirement package or a pension to commute, so bear that in mind. Meanwhile you can borrow money to invest, then use the refund to pay down the loan, ending up with free equity. Or just transfer assets you already own into an RRSP (called a ‘contribution in kind’) and Justin will send you money for selling yourself something you already owned. There are no words.

< 6 > Yes, effective Monday, Bill Morneau is dropping the hammer on sprinking. Business owners will no longer be able to split income with their spouses, but girlfriends and professional escorts are okay. So your wife or husband may have taken an equal risk and contributed financially, but they can no longer collect tax-efficient dividends or an income stream unless employed. So, hire them, and do it by Friday.

< 7 > If you’re an investor who bought a turkey asset and lost money, the rules let you deduct that mistake from the proceeds of an investment that did work out. Try that anywhere else in life. Tax losses can be carried forward indefinitely but if you wanted to sell and deduct the loss from a profit you made on something in 2017, you’re reading this one day too late. Remember next year you need to dump the loser at least two days before the calendar runs out.

< 8 > Turning 71 next year? Don’t fret. It’s the new 51, but this means you’ll have to convert your RRSP into an income-producing thing called a RRIF. Going forward this income will be added to all other money you make and could affect your ability to collect government pogey. But you get a final piece of revenge. The RRIF conversion need not happen until the end of the year and meanwhile you can make an RRSP contribution that will more than wipe out the impact for the next year or two. Plus if you married a babe younger than you, contribute in her name.

< 9 > Borrowing to invest increases risk, but it sure is tempting. A secured line of credit against your house costs 3.7% and the interest is 100% tax-deductible. Meanwhile a balanced portfolio in 2017 returned 11%. Last year it was 8.5%. Looks like more is coming. So you can keep all that equity sitting in a house doing diddly, or put it to work. Just promise me you will not buy Bitcoin.

< 10 > Move to Nunavut. Seriously. Where you live in this frozen beaver sanctuary affects your overall income tax rate, since provinces have different amounts they layer on top of the federal take. Nunavutians therefore pay more than 6% less than Canadians in many other jurisdictions. Alberta used to be cheap, too, but then the socialists took over.


The resistance

So far the T2 gang has created a new tax bracket for big-money earners, gutted the TFSA contribution limit by half, ended income-splitting for entrepreneurs and will (in the coming budget) whack doctors and the self-employed who sit on retained earnings. Notice a pattern?

Accountants and others who have no life and worry about this stuff (me) fear the Libs will also raise the capital gains inclusion rate before the next election and diddle with dividends. Canadians making a little over $200,000 now pay half in tax, and the business tax rate could be 70% for those who do not take cover.

All this has happened while Americans cut the corporate levy by 40% and reduce middle-class taxes by up to half while retaining mortgage-interest deductibility and letting companies write off expenses over months, not decades. Meanwhile American families pay 50% less for a house, on average, than do we beavers.

So how can we be so out of step with the guys next door?

The differences between the two countries are legion – just look at health care, for example. But it really boils down to one thing: Canadians lack confidence. We elect guys who promise more support, more structure and bigger government. So, we need higher taxes – which voters want other people to pay.

The evidence is all around us. It’s in the support Bill Morneau enjoyed during his attack on entrepreneurs and the self-employed. It’s in the obsession with ‘safe’ residential real estate as opposed to ‘risky’ financial assets. It’s certainly there in an historic number of young adults refusing to leave the parental womb until all risk is wiped away. It’s in the Bank of Mom handing over down payments, helping to game the system. And this week, in news of parents buying investment real estate for their school-aged children. Yuck.

Voters want safe. As the Millennials become the dominant group and foist their risk-shunning shared-society values on everyone, expect more of the above. There’s a major anti-corporatism unleashed now, altering the face of commerce. Ride-sharing vs the taxi business. Room-sharing vs hotels. Cryptocurrencies vs central bankers. Social media vs corporate news. At the centre is the refusal to accept that an income disparity should exist, with the 1% and the 99% drifting ever-further apart upon an ocean of inequality.

Trudeau has bragged there are no traditional, core values in Canada, and this place will become the ‘first post-national state’. It’s the ultimate anti-Trump stance, a finger in the eye of America where rich and risk are both admired, and diversity’s a dirty word. So, Congress can pass an act that lowers taxes for the wealthy, their heirs, investors, self-employed and corporations, and get away with it. In Canada we spent the summer debating if a plumber can sprinkle income to his wife, while the prime minister’s family took an exotic vacation paid for a billionaire lobbyist. And the Mills love him. His signature act will be to legalize weed.

So, these are seminal times. 2018 promises to accelerate the war between the wealth-hoarding Boomers and the moister-barbarians at the gate. Anyone with money probably won’t like the next Morneau budget, which is setting the groundwork for October 21, 2019 when Justin faces Jagmeet. If you think T2 is a lefty now, just wait.

Of course, this is a pathetic yet non-judgmental blog. (Scotch is already legal, so it’s all good.) Social justice is cool, but being financially independent is a more achievable goal. There’s no shame in success, no apology to be made for earning big money and wanting to keep it. Capricious taxation is not the prerogative of any politician or government, and you have the legal right to avoid paying more than your legislated fair share.

So in the spirit of constructive rebellion, and a ringing defence of the downtrodden affluent, (some of whom may actually be old, white, hetero guys) tune in tomorrow for a Tax Trash Manifesto – 10 Things the Prime Minister does Not Want you to Know.

Bring a helmet.