Personal FinanceTrading & Investing

TAX – My Biggest Financial enemy

tax, effeciency,

This post will come off as a bit of a rant. I want to share my point of view on one of my most hated financial enemies. To begin, when I refer to tax, my buddy Ben Franklin says it best: “In this world nothing can be said to be certain, except death and taxes.” He couldn’t be more right! Taxes grind my gears. I mean ALL forms of tax. Income, property, land transfer, welcome, airport, sales, Air conditioning, excise, lunch money tax etc!

While ALL other expenditures in my life are voluntary… I chose to buy a house, a bag of skittles or that Justin Bieber CD. In contrast, taxation is mandated by legislation, therefore I lose my ability to chose.

Now that my shock and awe has grabbed your attention, let me first temper this post with the following reassurance. At no point am I here to dispute the usesfullness of taxation. I am in full support of the services I get in exchange for my tax dollars. The purpose of the article is to focus on how to be as tax efficient as possible. More money staying with me, means more capital to invest OR higher quality of life.

A lot of people attribute tax efficiency with tax avoidance. However, these 2 are not synonymous. An individual can structure his personal finances in such a way to become tax efficient. All this within the guidelines of the CRA. Let me give you a few tips to spur your imagination and get you asking questions about your own situation.

Some thought starters.

  • First of all, am I claiming all of the eligible deductions made available to me from the CRA? A lot of people aren’t fully aware of the deductions they are entitled to. I consider this like leaving money on the table.
  • Secondly, how do I minimize my taxable profile in the highest tax years? Instead, let me smooth out the reported income into lower tax years. Should I be happy to see a giant T4 in my 30s and 40s? Or should I work hard to defer tax from the high years and push into retirement years.  In some cases this can mean a difference of 20%! If your family is earning $100,000 a year, that’s an additional $20,000 per year!
  • Also, the investments I own or plan to purchase, are they tax efficient? Have I asked my financial advisor if I am as tax efficient as I should be?
  • In some cases, maybe I didn’t work last year or I went on maternity leave, did I deduct RRSPs that year? or did I save that tax deduction for a year of higher income? Bigger bang for my buck.

I believe I will be writing on this subject a few times over the next couple of months, so see this as a thought starter rather than a complete report. That being said, I myself, have spent a few years adjusting and optimizing our family situation to make us as tax efficient as possible. Accordingly, one perfect example is this blog! I chose to start this project to help with tax efficiencies on my family income.