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And later on, you get to choose when and how the money comes out or gets passed down to your kids...
Yabbut. There is no restriction on how monies can come in or out of the nonreg pot anyway. Unlike the RRSP/RRIF pot.
 

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Discussion Starter · #22 ·
Exactly. So why would you invest in a non-reg account with after-personal-income-tax-dollars, when your corp can invest non-registered funds with after-"corporate"-tax dollars?! That article misses the point completely. The key difference is between investing 53 cents on the dollar (after 47% personal tax), and investing 85 cents on the dollar (after 15% corporate tax). Thats huge! Who cares if the interest is taxed the same way when there is that much more interest to be taxed?
 

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Exactly. So why would you invest in a non-reg account with after-personal-income-tax-dollars, when your corp can invest non-registered funds with after-"corporate"-tax dollars?! That article misses the point completely. The key difference is between investing 53 cents on the dollar (after 47% personal tax), and investing 85 cents on the dollar (after 15% corporate tax). Thats huge! Who cares if the interest is taxed the same way when there is that much more interest to be taxed?
I'm going to let Mr. Steve handle this one. :)

Back to the original topic - I would suggest using Steve's analysis (or something like it). You can factor in a "corporation" benefit if you want. Perhaps add 5% or whatever to the future net income.

As I mentioned, with all the other uncertainties - that's good enough.
 

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I ran the same plan three times....

-nonreg taxed as full interest
-nonreg taxed as dividends
-nonreg untaxed

In the 1st, the ATI came in at 139K,
2nd came in at 146K,
and the 3rd came in at 153K

So, I guess your tax avoidance strategy will deliver you the exotic imported caviar instead of the domestic. Bon appetite.
 

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Discussion Starter · #25 ·
But none of those three scenarios equates to the reality of my situation.

And please don't get me started on tax avoidance... This is probably not the place for a rant... But... Please do not get me wrong; I love this country, I am an extremely proud Canadian, and I particularly love the socialist bent to our health care funding, makes my job particularly easier knowing that I don't have to be concerned about what things cost: I just order the tests and procedures that are required... But... Writing $50,000 quarterly cheques to CRA gives a certain clarity of focus to any hint of waste in government... let's just say an era of smaller, more-efficient governments would not be unwelcome... And if I can save a little more for my kids through a government sanctioned tax avoidance strategy, then I will not hesitate to do that... In fact, I'd be crazy not to!
 

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But none of those three scenarios equates to the reality of my situation.

And please don't get me started on tax avoidance... This is probably not the place for a rant... But... Please do not get me wrong; I love this country, I am an extremely proud Canadian, and I particularly love the socialist bent to our health care funding, makes my job particularly easier knowing that I don't have to be concerned about what things cost: I just order the tests and procedures that are required... But... Writing $50,000 quarterly cheques to CRA gives a certain clarity of focus to any hint of waste in government... let's just say an era of smaller, more-efficient governments would not be unwelcome... And if I can save a little more for my kids through a government sanctioned tax avoidance strategy, then I will not hesitate to do that... In fact, I'd be crazy not to!
Said the government worker... Man I hate giving the government back a portion of the money they gave me... ;).

The problem when you talk about government waste is that a number of people would consider your pay government waste.

The system we've got is the system we've got and I'm all for working within that system to maximize one's own utility, but if we begin cutting government services, we'd all do well to take a step back and really consider what we're cutting.

My house has never caught fire, but I hope that there are firefighters around the one time it does. Never needed and ambulance or paramedics, but if I have a heart attack I don't want to have to pay them before they save me. The list goes on...

Granted, there are obvious examples of government waste that we can all agree on (private jet rides, private helicopter rides, fancy gazebos etc..., this list also goes on).

The challenge is reaching a balance between the hippies and the pure capitalists.
 

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Discussion Starter · #27 ·
Well said.

I don't ever want to sound entitled or ungrateful. I love what I do. I love everything about this country that has afforded me the opportunity to do it... And I'm excedingly grateful and fortunate to be paid well for doing what I love.

I'm just here as a neophyte with a sudden excess of capital who wants to try to learn a bit about how I might do a little better for my family in the long run. It would be too easy to ignore these issues and pay someone else to manage our money for us... And maybe that is what I'll end up doing in the end... but for now I'm here...

And, by the way, I think the Canadian electorate does an excellent job reaching that balance! We've had a long run of overspending, so this era of slash and cut was overdue... But it won't last too long, and we'll start the pendulum swinging the other way soon enough.
 

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Well said.

I don't ever want to sound entitled or ungrateful. I love what I do. I love everything about this country that has afforded me the opportunity to do it... And I'm excedingly grateful and fortunate to be paid well for doing what I love.
Wasn't an attack at all, don't worry. My mom feels the same way about her job, and apparently before McGuinty made changes to MD comp she was doing the exact same work for 1/3 the pay. She now gets paid for a load of things she did for free before, and while she feels like she's overpaid now, she's not complaining.

The tricky part of MD compensation is that doctors can go south of the border and make a ton of cash, so we need incentives to keep them here. Have we overcompensated in the last few years here in Ontario? Maybe. I think GPs in Ontario are making a lot more than in the States, but down south patients generally go straight to the specialist which ends up costing them more overall.

I think most Canadians want to see waste eliminated, and when we see government workers spending $1,400 a night on a hotel room we get a little pissed off at our tax bill.
 

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Discussion Starter · #29 ·
But comparing her pay from those two periods is a little unfair. The one-payer system keeps costs artificially low and not reflecting the 'true value' of anything... (like the politburo trying to tell people that bread costs a penny - what happened there is the black marketeers bought up all the penny bread and sold it for $50 / loaf)...

E.g. When universal health insurance came to Canada you could buy an office complex for about $2000. A doctor at that point was paid ~$4 per visit, and he/she was easily considered "upper class". Fast forward 40 years later, that same office complex: $2,000,000... That same office visit: ... Wait for it ... $16 ... And that doctor sat comfortably in the middle class. So the recent increase was welcomed by many both in and outside of the profession. (but you'll never hear doctors complaining about their pay because, 1. We don't do it for the money; and, 2. We get paid well enough either way.)
 

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I appreciate every penny the government spends on health. I know that Canadian doctors are underpaid, and I am glad they are choosing the Canadian way. I don't mind waiting for non-life-threatening procedures. The price is right.
 

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But none of those three scenarios equates to the reality of my situation.
If you want an exact analysis - you need to hire the appropriate person and pay some money (as MG suggested). This might not be a bad idea.

In the meantime, if you assume that your scenario (using the advantages of the corporation etc) will be better tax-wise than Steve's scenario, then you can use his numbers as a minimum income level approximation.
 

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If you want an exact analysis - you need to hire the appropriate person and pay some money (as MG suggested). This might not be a bad idea.

In the meantime, if you assume that your scenario (using the advantages of the corporation etc) will be better tax-wise than Steve's scenario, then you can use his numbers as a minimum income level approximation.
The 153K result means, that (except for tax on salary and RRSP withdrawals, CPP, etc) all investment income associated with monies outside your RRSP (i.e. your nonreg capital) will be untaxed. I can't see how managing this money in a holding company could improve that.
 

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Discussion Starter · #33 · (Edited)
Hard to believe over two years have passed since I made that first post..... been lurking a lot.... and learning a lot.... so thank you all.... Feel a little strange about posting some of this but I have been referring back to my first post occasionally so I figured I'd update a few things for posterity...... It's been a good couple of years for our family finances.... our mortgage is gone.... our student debt is gone... but our slightly premature backyard renovation debt (new pool and stone and hot tub) is not quite gone... But our kids are awesome swimmers and we've thrown some great parties...... AND we just found out we've over-paid taxes in 2013.... so we'll be getting a nice little tax return next month which should put us within a month or two of being completely debt free...... which feels amazing.... hence the update!

Assets:
$550,000 House (that's about what we've put in, including the reno's.... might be marketable for more, but whatever!)
$30,000 8-seater
$5,000 commuter sedan
$97,000 discount broker corporate investment account (mostly Cdn Dividend Payers with a portion also in a HISA at 1.25%)
$33,000 combined TFSAs (haven't added to these since 2011)
$28000 in RRSP (haven't been adding to this and not sure if we will.... the corporate account might suffice)
$16000 in an RESP (also haven't been adding to this.... the corporate account might suffice)
$800,000 DB Pension (TV)(or a deferred annuity of $60,000 annually payable in 2033.... I know Harold it's gold-plated! But please don't hate the player, hate the game.)

Liabilities:
$0 Mortgage
$19000 LOC debt at bank prime should be gone by July (possibly sooner)
$0 owed to anyone or anything else....

So when I write it all down this way... and do the math... it appears that we're officially millionaires... ~1.5M actually...... and it's conceivable that we've been millionaires for some time..... kinda had a feeling that was the case but hadn't added the pension value until just now.... Truthfully it doesn't change anything...... our cash-flow generating assets are certainly not there yet.... our focus is not on 'net worth' anyway because it really doesn't matter, does it.... What matters is that our investments (TFSAs and Corporate Savings) generated ~$3000 in dividends, interest, and option premium in 2013 and they're currently on track to generate slightly more than $7000 in 2014........ That's the number I'm tracking with vigour.... growth in cash-flow is our only real concern now.... Hopefully it will be positive.... and hopefully I'll keep this updated with our progress..... we'll see how this post is received first.... I may not post much more but I'm reading a lot and I appreciate all your input....

"The purpose of life is to discover your gift. The meaning of life is to give your gift away"
Take care of yourselves CMF'rs.... you're doing good in the world....
 

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Awesome work! so a ~700k increase in 2.5 years? :encouragement:

What matters is that our investments (TFSAs and Corporate Savings) generated ~$3000 in dividends, interest, and option premium in 2013 and they're currently on track to generate slightly more than $7000 in 2014........ That's the number I'm tracking with vigour.... growth in cash-flow is our only real concern now....
How come? Are you planning to retire in a year or two? I would think you'd be most interested in growing your total assets, cashflow/income be damned.
 

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Discussion Starter · #35 · (Edited)
"700k increase in 2.5yrs..."... When you put it that way it seems more herculean than it felt... the biggest increase was in the pension Transfer Value... and that was due to a promotion and buying back some previous service...

Paying off the mortgage was a lot of fun too... Our accountant thinks we're crazy, but I think it's a better long-term financial decision than most of the 'money-people' tend to let on... more years where zero after-tax dollars are going to pay the bank interest seems better..... sure we'd have paid less tax over the past 2.5 years (by leaving the assets in the corp), and our investment account would be that much bigger..... but going forward from here we'll be able to save a lot more.....

And "How come?"... well that's a bigger question than I thought... it actually made me think (so thanks).... Truth is I probably won't stop working... maybe ever... I kinda love the work... but buying assets that produce income just seems like the right way to go..... then the option to retire, or even take a prolonged vacation will be on the table for the rest of our lives.....

I'm certainly no expert though.
Just muddling through.
And maybe we should be buying other things now? I don't know.....

I'm pretty pleased with myself for achieving an "MER" of 0.059% last year and actually offsetting all trading fees (which were very minimal) with option premium... so it feels like we paid nothing!!
 

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Also take a look at this thread by a fellow Dr. http://canadianmoneyforum.com/showthread.php/17339-Anti-dividend-investing

Especially for high income individuals, dividend payments are a guaranteed taxation event. You may want to look into investments which minimize income/dividends so that you can defer paying (capital gains) taxes as long as possible.

For example:

$100,000 invested over 40 years at 6% Nominal Return in the province of Alberta at the highest tax bracket...

With a 6% dividend, and 0% capital gain you get $662,990 after tax.

With a 3% dividend, 3% capital gain, and 10% churning rate (this means you will sell 10% of your portfolio each year and pay capital gains tax on that 10% position) you end up with $808,150 after tax.

With a 0% dividend, 6% capital gain, and 10% churning, you get $984,120 after tax. (with a 25% churning rate you get 920k, with a 5% churning rate you get 1.01m)


It is quite apparent that if you are in the highest tax bracket with unregistered investments the prudent strategy is to buy stocks of the highest quality, with the lowest dividend payment, which you will not feel the urge to sell for as long a time period as possible.

If you have unregistered stocks that aren't Canadian, which a large unregistered portfolio probably should, dividends get even worse!


Just some food for though :)

Edit: the above is assuming you are in Alberta (my province). Every other province is much worse for dividend tax at the highest bracket, and would make the differences even more profound.
 

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^ I just realized that your porfolio will be held in a corporation, not a personal account. I am not sure what the taxation rates are for this scenario... The math behind the comparison will always give favour towards the capital gain though.

Take your 100k, from which you want to generate 6% income annually. Assume tax rates are equal for both dividends and capital gains... 20%

A 6% dividend payment for the year will give you $6,000. You will pay $1,200 in tax, and be left with $4,800.

From your non dividend portfolio, you sell $6,000 worth of shares. These shares have been churned, including the 6%, by 10% for the year. So you had 100k to start. It gained 6%, you sold 10% (kept 6% and reinvested 4%). You tax bill will therefore be $6000 gain * 0.1 churning rate * 20% = $120. You would be left with $5,880 after tax.

Buffet explained this in one of his letters, as to why there is no dividend for Berkshire, and why that even if one is in retirement and needs regular income, it is better to sell shares and pay capital gains than collect dividends.
 

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Discussion Starter · #38 ·
Thanks Pete... I never really thought about it this way... Makes sense though... I'll have to stop focussing so much on the divi payers...
 

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Often times though divi payers also turn out to be good investments via capital appreciation,I get the point of the discussion but it doesn't have to be either or.
You can find many divi companies that are also phenomenal investments(income aside)
Not saying you should or shouldn't do anything but there is plenty of evidence bearing this out.
 

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^ Certainly. Despite my long post above, the consideration of dividends; high, low or non existant, should be fairly low on your list of criteria for selecting a stock. Picking a stock with no dividend to save tax is only slightly less foolish than picking a stock with an 8% yield because you want "income"
 
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