Canadians: Income -about $40,000.00 ... -Income Tax ... $0.00

joyfulguyFebruary 2, 2007

Income about $40,000. ... but income tax $00.00 ... impossible, you say?

Well, that's true, for most of us.

There are several provisos, as I assume that you'll suspect - and rightly so.

1. The "taxpayer" must be rich.

2. The "taxpayer must have only one kind of income.

3. The "Taxpayer" can't work.

Well, if s/he feels a responsibility to do some work in order to pay his/her way in society, that's fine - but s/he can't take pay for it ...

... and still be totally without income tax liability.

Don't get me wrong - the benefit that I referred to will still be there for that worker who has employment income, but the taxpayer won't be able to avoid tax entirely.

If a person has a million in assets that are invested in stocks of Canadian companies that pay 4%, producing income of $40,000 (more or less), and that "taxpayer" has no other income ...

... the use of the dividend tax credit coupled with the non-refundable tax credits that every taxpayer enjoys will mean that there is no tax to pay.

If the "taxpayer" is over 65, thus qualifies for the senior's tax credit, the amount of income can be larger, and if gifts are made to charity, or one has more than 3% of net income in medical expenses, an even larger income can be obtained without tax liability.

But - hold on a minute. At age 65, most of us who have certain years of residency in Canada receive the Old Age Security. And we have all contributed to Canada Pension Plan, so we can choose to begin drawing that (assuming that we are substantially retired) at any time between ages 60 and 70, with 6% per year penalty if claimed prior to 65, and 6% annual increase if not claimed till after 65.

Which will mean that, like the employed person who receives employment income, such seniors can't avoid paying any tax at all.

But the benefit still is there.

The tax-free amount used to be around $25,000.00, until they revamped the tax system, last year.

Remember how I said that I prefer earning Canadian dividends to earning interest?

That's part of the reason - I pay tax at top marginal rate on every dollar of interest earnings.

Anybody qualify now?

Or - interested in re-arranging your financial affairs in order to take advantage of the opportunity?

Hope you've had a lovely week, and are looking forward to the weekend.

ole joyful

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bushleague

You obviuosly are not self-employed.

    Bookmark   February 3, 2007 at 6:05PM
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joyfulguy

Hi Bush-league,

The self-employed system is a whole other ball game.

In the "Retirement" forum I've said that every retiree should have a home-based business, as it gives one the opportunity for some nice tax deductions (that one needs to be able to justify as legit. business expense in the likely possibility that the Canada Revenue Agency comes calling).

If you have enough surplus over the needs of your business that you can make some investments, no doubt if you need a business loan you'll get a much lower rate of interest if you have such collateral than if there is a much lower level of security that you can offer the lending agency.

Problem is - usually, if you're using equity-based assets, they'll only lend you $100. for every $200. worth of asset (and want some more cash/security fast in case the value of your asset shrinks below that ratio).

If you use bonds, usually they'll lend up to 90% (but I don't like bonds, for other reassons).

Hope you have a great week - and good wishes for success in your business, provided that you treat suppliers, employees and clients fairly.

ole joyful

P.S. You don't, by any chance, happen to be related to that other "Bush", do you?

o j

    Bookmark   February 4, 2007 at 1:51PM
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joyfulguy

Hi again, everyone,

Update on the above info, offered by my friend the accountant whom I first met at the investment group about 5 years or more ago. The guy who retired last year, without a pension, and who now borrows at about 6% (interest deductible when used for investment) and puts it out to earn about 12% (much of current return at low tax rate, some of it deferred, to be taxed at low rate when withdrawn).

He says that the amount of current income that that can be obtained free of tax is closer to $50,000.00.

Same provisos as outlined above - with possibility of bumping up the amount that is received free of tax given some of the situations as mentioned.

Sorry that the situation applies only to Canadian residents, folks.

Good wishes to you and yours.

ole joyful

P.S. We had a visitor/new member at our investment group last week, who said that she felt rather at sea, among such skilled investors.

We told her not to feel bad - that in the investment game, there are no stupid questions. That she should ask any of us to explain various terms or situations that were unfamiliar to her. Each of us learns as we go, a step at a time.

Compensation usually increases commensurate with increased knowledge!

o j

    Bookmark   March 6, 2007 at 5:31AM
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