Tuesday, January 1, 2019

Canada’s biggest suckers

If you play poker and look around the table and don't see who the patsy is, then you are the sucker who gets cleaned out. If you are in Canada and don't know who gets cleaned out, then it is  you, the wage-earning middle class, that is the sucker!  How do I know that you are the wage earning middle class? Because, the middle class constitutes most of us.

Even if you would tax the top 1% for all their money, they would never bring in enough to finance the costs of taking care of all Canadians from cradle to grave. We demand more and more from our government and they are happy to take care of us – for a price!  Our freedom and our financial independence! 

But not only is it impossible for the rich to take care of you the middle class and the poor, but they also would refuse to do so and run out of Canada (for so far as they haven’t done so already). I live in Canada and love its beauty. I am not requiring yachts and other fancy toys and my lifestyle is comfortable. And… I can get luxury when ever I please!  Your buddy Justin has even overseas, hidden tax-free bank accounts and he has paid-for vacations on private islands! Just check Wikileaks.

Wage earners don’t get rich because they pay taxes either directly or through their employers. If you and your employer contribute to your retirement savings, then that is paid for out of YOUR employment proceeds! You could call it your gross-gross income. If your employers did not have to contribute to your Canada Pension, they could afford to pay it to you directly! But no, the government doesn’t trust you with your own money. The proposed federal carbon taxes are ultimately paid by you and then, to entice you, the government will after administrative ‘overhead’ and a minor amount for infrastructure and green initiatives, pay the rest back to you who deserve it. The rest are screwed!  So now that you think you get your money and that of others paying carbon taxes back, now nearly 50% of you like that tax. Suckers! As if you don’t pay already enough taxes! 

Reality is that typical wage earners pay the bulk of the taxes. The ‘rich’ own assets from which they draw just enough money to live off and thus minimize their taxes. Most investment income is tax-advantaged why else would you even consider investing in Canada? It is already difficult enough to make money from investments in this socialist country!  That is why many own assets like stocks and bonds in non-Canadian companies!  We call that  country diversification. And… any taxes we pay overseas is tax-deductible! Besides, as long as you don’t sell your assets and they appreciate you don’t pay taxes.  That is why share-buy backs are so popular with investors. Instead of paying a dividend, companies reduce the number of outstanding shares using money that could have been used for dividends. The profits stay the same or grow organically; they are divided amongst the reduced number of share(holder)s. If the shareholders don’t sell, they don’t even pay capital gains taxes!  Thus, they received the same money basically tax free!
If you eliminate your salary and instead live of appreciated assets and pay reduced taxes on rents and dividends you don’t pay that much taxes. Say you make $100,000 out of your employment and you have to pay out of that taxes (typically 44% according to the Fraser Institute) not counting Canada Pension and Unemployment insurance and union fees ! You live of $56,000 per year including your retirement savings! A rich person doesn't need to save for retirement any longer. So he or she needs only $50,000 annually (assuming 10% savings).   If a rich person needs to extract $50,000 of income, she can first use his personal exemption and reduce it to $35,000 in taxable income. She can take money out of the tax free savings account – say $5000 tax free! Taxable income is down to $30,000. Then he/she can deduct his medical expenses and investment expenses say by a further $5000.  The remaining money - $25,000 of taxable income, she can obtain from tax advantaged dividends and from selling capital appreciated assets. $15,000 of capital gains are only taxable at 50% thus his taxable income is down to $17,500 and dividend tax credits reduced taxes even further. Say there is $13,000 taxable income left which is then taxed at the lowest tax rate 17%! Those taxes are then largely paid out of the withholding taxes paid on any money from the annual RRSP withdrawal.  Thus for the same life style that an employee has to earn $100,000, a 'rich' person requires only $55,000 in investment income. With a return on investments of 7 to 10%, that investor needs only $550,00 to $0.8 million investment capital. Do you know how many people in Toronto or Vancouver own paid-for real estate worth $1 million or more?  Say such an investor is 65 years or older! Now she can use his Canada pension and AOS to reduce the required net worth even further! Senior discounts anyone?
Who is the sucker at Canada’s poker table? You the wage earning middle class. Who is the ‘great defender’ of you, the salaried middleclass? Yes, Mr. Tax-even-more and borrow-more Liberal! Justin cannot tax the rich more – they just leave the country or invest their money outside Canada. Mr. and Mrs. Middleclass – you think the rich pay?  Then why are you paying nearly all the taxes?  Because you elected a government that ‘takes care of you from cradle to grave’ rather than electing for a government that lets you control your own salary and money!

P.S. It is possible in Canada to make $51,000 of dividend income tax free

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