Should this kind of tax dodge be legal?

[Veovis]

Ordinary people are not allowed to put unlimited amounts into their RSP. And, when money is withdrawn from an RSP it is taxed at the owner's full personal income tax rate (even if it had generated dividend income and/or capital gains within the RSP)

No it isn't. Again you need to refer to your own statement that you are not a tax expert yet again you are making false statements to try to create a story that sounds good but is still full of lies. People that put into an RRSP save more in taxes than they pay in the future, it is the purpose of the RRSP as a tax planning system. Again not a loophole and available to everyone.

The fact that you will say

To Veovis:

Anybody who is able to generate a good annual income from his or her business, and then sell it for millions, has already been well compensated for the hard work and time they put into that business.

Tells me that you don't care about the fact there isn't loopholes, you just don't think successful people should be entitled to keep what they made even after taxes have been paid on that money, so you create this series of half truths to try to convince yourself and mislead others to get upset over "loopholes". Instead of create ones own success you advocate for the tearing down of those that do. It is one of the single worst traits that the die hard NDP left share, it is never about creating, it is about taking, destroying, and calling that destruction and lies in the name of "unfairness", even when stating they don't know what they are talking about.

[Muzza]

Merry wrote:
To Veovis:

Anybody who is able to generate a good annual income from his or her business, and then sell it for millions, has already been well compensated for the hard work and time they put into that business.

And that is often not true. Often people spend many, many years building their business, taking only a small income to support themselves in the hope of having something of value to sell in the future.

My own father is an example. My father grew up dirt poor. The only food they had was what his mother grew and he shot. In order to attend university, my father lived in the furnace room of a girls school and his job was to shovel coal during the night and he attended classes during the day. He managed to get an education and did fairly well.

Even then, my parents scrimped and saved for years. Everything my dad earned from his day job went to purchasing and developing property. He worked non stop. We never had new cars or vacations. All our clothes were hand me downs. My siblings and I worked every single weekend and every single holiday to help my mom and dad to grow our family business. My mom never had a real holiday until after my dad died. He never got to enjoy what he built.

Everything he purchased in relation to the business was after tax income. He paid his taxes like everyone else. However, he didn't spend any more than he had to on himself or us. Instead, he invested his after tax income in the business and we all worked our butts off for next to nothing from the time we were 8 years old to build the business.

Merry, you say there are all these loopholes. Well, we hired some pretty expensive tax lawyers and accountants, and I can tell you, there isn't much we were able to do. The best we were able to do is defer some of the income from the sale of the business, but not all. By deferring some of the income means we do not have access to it. Yes, it is invested and is growing, so we will do quite well sometime down the road. Also, when we are able to eventually take the income out, we will be paying more income tax at that point than we would if we were able to take out the income now, so to me, it is pretty well a wash - pay less tax now, or more tax later.

So get over your jealousy of people who work hard and sacrifice for their future.

[Merry]

People that put into an RRSP save more in taxes than they pay in the future, it is the purpose of the RRSP as a tax planning system.

RRSP withdrawals are taxed at your highest marginal rate (whatever that may be based on your income in the year you take the money out).

And what, if anything you save, depends on the difference between your tax rate when you put the money in, and your tax rate when you take the money out. It also depends on whether or not the tax rate has been increased since you first began contributing, and by how much.

But regardless, my point was the money taken from a CCPC in the form of either a dividend or a capital gain, receives much more favourable tax treatment than money taken from an RRSP.

As to the rest of your post, I have no problem with the fact that some people are rich. What I do have a problem with is the fact that are certain tax credits that are utilized by the rich (partly because they have enough money to make such tactics financially worthwhile, and partly because they can afford the fancy accountants and tax advisors necessary to help them set such tax shelters up) that enable them to pay less than the rate their tax bracket normally requires.

The method they are using, while perfectly legal, was never intended to help rich people save on taxes. It was intended to help small business thrive, in the hope they would then create more employment. But rich people with non operating businesses that were set up for tax purposes do absolutely nothing to help create employment - only their own bottom line.

Every time one group saves money on their taxes, the rest of us have to pay a little bit more to make up the shortfall. And I'm tired of paying more than I need to in order to put a little more cash in the pockets of the rich.

I would like to see the small business tax rules completely divorced from the kind of uses they are often put to in order to help rich retired folks save on tax. If we really think the rich need some kind of tax credit to help them buy their groceries (or whatever) we should design a system specially for that process, and make it transparent enough that everyone fully understands the reason for it, and how it works. Because the system we have no does neither.

Instead of create ones own success you advocate for the tearing down of those that do. It is one of the single worst traits that the die hard NDP left share, it is never about creating, it is about taking, destroying, and calling that destruction and lies in the name of "unfairness", even when stating they don't know what they are talking about.[/quote]

[Merry]

So get over your jealousy of people who work hard and sacrifice for their future.

There are LOTS of people, in many different professions, who "work hard and sacrifice for the future" - not just business people.

I get tired of the argument that business people are some sort of a special case, who therefore deserve special tax treatment.

I know people who left their friends and families behind to go work up north in dreadful conditions in order to provide a better life for their families. But they don't get the same kind of preferential treatment via the tax code that many business owners do. And there are many other professions that also require hard word and sacrifice. What about them?

Even moving to a one industry town, where house prices are excessive, and rental units almost non existent, places a huge risk on our financial wellbeing because, if the company goes down, you're likely to lose everything you own. But that group doesn't get any special tax treatment in the event something like that happens.

All I'm saying is that I think Trudeau is right when he says we need to take a hard look at the rules intended for small business, and make sure they are not also benefiting those for whom they were never originally intended to help.

[Muzza]

All I'm saying is that I think Trudeau is right when he says we need to take a hard look at the rules intended for small business, and make sure they are not also benefiting those for whom they were never originally intended to help.

I don't disagree with that, but as it was just an election ploy, and all these special breaks for the rich don't really exist, nothing much will come of it (and I voted Liberal federally).

And sorry if I come off harsh, but I'm sick and tired of hearing about how horrible the rich are (and I am definitely not rich), and that there are so many ways that the rich benefit. Most of these tricks used by the rich are illegal, and therefore the complaints should be directed at Revenue Canada for not prosecuting. Instead Revenue Canada goes after the little guy - I am an example. I got nailed for an honest mistake and paid dearly. However, I am still not jealous of those who have money. I work 80 hours a week - for a company and on my own projects, so that I will be rich one day. I have made enormous sacrifices over that last 10 years, and I will be damned if someone wants to take more from me than what I feel is fair.

[Muzza]

I know people who left their friends and families behind to go work up north in dreadful conditions in order to provide a better life for their families. But they don't get the same kind of preferential treatment via the tax code that many business owners do. And there are many other professions that also require hard word and sacrifice. What about them?

I had to move to an eastern European country for a year to support my family because I could not get work in North America. It was very difficult. But so what? I don't expect to be treated differently because I struggled to support my family. Life is not fair and it never will be.

An example of someone I know who is doing what you are talking about. The husband is up north working and making good money. However, they are *bleep* it all away. They are not willing to make the sacrifice. They spend, spend, spend and do not save. That is their problem. Why should I pay more tax for boneheads like that. They will be broke when they are forced to retire, because they did not make the sacrifices.

It doesn't mean that I should get screwed over by being successful for using my brains and making sacrifices. This is where we differ. I believe people deserve to be rewarded for their hard work, and be rewarded for their intelligence. If someone is born with a silver spoon, I say "good for them". It gives others something to aspire to. And don't don't say "not everyone has the right opportunities - the difference (and the reality) is (and I am generalizing), "not everyone is willing to make the sacrifices". My dad is an example - working shoveling coal all night and going to school during the day. He taught us to work hard and think smart and plan for the future.

These people who get the "preferential treatment via the tax code" that you keep talking about, worked hard to get there, so again, "good for them". I applaud them for what they have achieved, and they should be well rewarded. If I don't manage to get their myself, I have the satisfaction of knowing that I worked hard and did the best I could. I will never be jealous of them if I fail. Never.

[Static]

Rrsps are a waste of time. Nothing but a tax deferment plan. TFSA all the way!

[Veovis]

Rrsps are a waste of time. Nothing but a tax deferment plan. TFSA all the way!

Now certainly. But before TFSA, RRSP was a good option for tax deferral.

I just love the theoretical concept that is used though.

"Someone made all the payments on a new car, and now that the last payment is done they should no longer be entitled to own that car, after all, they were fairly compensated for the car payments by being allowed to drive it while they paid, but after, how dare they try to keep the property they paid for"

Change the word car to company, and you have Merry's argument.

I'm not against improvements to the tax act and systems, but this "there are loopholes" and "get the rich" witch hunts have gotten silly and are usually based with 1 part truth 6 parts lies and a whole lot of envy.

[Muzza]

I know people who left their friends and families behind to go work up north in dreadful conditions in order to provide a better life for their families. But they don't get the same kind of preferential treatment via the tax code that many business owners do. And there are many other professions that also require hard word and sacrifice. What about them?

These people are not taking any risk. Yeah, they work hard and sacrifice some family time, but they are very, very well compensated for it. When they finish their shift, they can forget about the job and have their fully paid for for 3 course dinner. My friend doing this is making over $100,000 a year. But *bleep* it all away.

[Merry]

All I'm saying is that I think Trudeau is right when he says we need to take a hard look at the rules intended for small business, and make sure they are not also benefiting those for whom they were never originally intended to help.

I don't disagree with that, but as it was just an election ploy

Trudeau saying he will fix the problem may, or may not, have been "just an election ploy" (time will tell), but there are many economists who agree with him that there are certain tax breaks being utilized by rich people to reduce their tax bill, that were not originally intended to be used in that way.

If you read back through my posts you'll find several quotes about that (with web links).

I'm sick and tired of hearing about how horrible the rich are

You've never heard that from me (and you never will) because I don't think rich people are horrible. I don't even blame them for taking advantage of laws which are so poorly written they have unintended consequences. But I do blame our Government for not fixing the problem, once they became aware of it.

Laws designed to help small businesses thrive, that are being used for purposes other than those originally intended, need to be changed.

Because everyone, rich or not, should be paying their fair share of taxes. We all use the services those taxes pay for, so we all should pay our fair share of the cost of those services. And knowingly allowing any one group to avoid doing so, results in everybody else having to pay a bit more than necessary.

I sympathize with your point about Revenue Canada picking on the "easy" targets rather than focusing on the more difficult, more complicated cases. But this thread is not about illegal, or even mistaken, tax dodges. It is about tax laws written to help a specific group being used (perfectly legally) by a totally different group, and about how the Government needs to reword those laws to prevent this issue.

[Merry]

I don't expect to be treated differently because I struggled to support my family. Life is not fair and it never will be.

Which is exactly the point I was trying to make.

You appear to have misunderstood what I was saying Muzza. I wasn't trying to suggest that someone such as the example I gave should get any kind of special tax break. My point was that there are lots of folks who sacrifice and struggle to get on in life, not just people who are in a position to take advantage of the tax benefits of setting up a CCPC in retirement. And none of them should get a special tax break that is not available to all.

We have a graduated tax system which, if we got rid of all the ways people are able to circumvent the system, would ensure that everybody paid their fair share relative to income. The majority of tax credits unnecessarily complicate the whole process, and only serve to increase the tax bills of those unable to claim that particular credit. However, the few credits that are worthy of retaining, ought to be worded in such a way as to ensure they can only be utilized by the group they were originally intended to help.

The tax laws related to small business were designed to help small business thrive, in the hope they would then hire more employees. But allowing retired people to set up CCPC's (Canadian Controlled Private Corporations) as tax deferral and/or tax reduction mechanisms, does not in any way serve the intended purpose of putting more Canadians to work.

IF we want to create some kind of retirement account aimed strictly at small business owners, then we need to create something specially designed for that purpose. But continuing to allow certain groups of people (who are currently not in business) to reduce their tax bill, by using laws designed specifically for operating businesses, is wrong.

[Merry]

"Someone made all the payments on a new car, and now that the last payment is done they should no longer be entitled to own that car, after all, they were fairly compensated for the car payments by being allowed to drive it while they paid, but after, how dare they try to keep the property they paid for"

Change the word car to company, and you have Merry's argument.

Nonsense.

If you believe that, you haven't understood a word I've said.

I'm not against improvements to the tax act and systems,

Then open your mind to what I'm trying to say, instead of being blinded by a conviction that I'm simply trying to "pick on the rich". Because I have absolutely no problem at all with the fact that some people are rich. What I do have a problem with, is allowing people to utilize laws in ways that were never intended, just so they can pay less than their fair share of tax.

I'm not blaming people for taking advantage of such laws. I'm blaming the Government for creating the situation in the first place, and then not fixing it once they realized their mistake.

[Merry]

These people are not taking any risk.

Of course they're taking a risk. If you go live in a one industry town, be it mining or logging, chances are that house prices are extremely high when the industry is doing well (and very expensive rental accommodation is in short supply, or non existent). The combined cost of the expensive housing, and expensive everything else in such towns (from groceries, to clothing and furniture) soon eats up a lot of what, at first blush, sounds like a very high salary. Then, when the industry moves from boom to bust (as it inevitably does) the worker is now stuck with a massive mortgage and no income, in a town where there are virtually no buyers for your house.

I've seen such a scenario play out time and time again. So don't tell me that there is no risk involved in that kind of lifestyle. Because it simply isn't true.

But that said, this thread is not about how all lifestyle choices carry some element of risk. It's about how one particular group of people, who are not currently in business, are reducing their tax bill through the utilization of tax laws originally intended to enable business to hire more people.

But you don't have to believe me. There are many studies that have come to the same conclusion, and I have provided links to some of those studies in my earlier posts. I suggest you go read them.

[LANDM]

....... And none of them should get a special tax break that is not available to all.

.....The tax laws related to small business were designed to help small business thrive, in the hope they would then hire more employees. But allowing retired people to set up CCPC's (Canadian Controlled Private Corporations) as tax deferral and/or tax reduction mechanisms, does not in any way serve the intended purpose of putting more Canadians to work.
.

The taxation mechanisms, in our country are, generally, available to all. Whether some have the need to use certain of those mechanisms is irrelevant. You feel that everyone should be able to set up a company to manage their income stream......they can, if their circumstances dictate that it makes sense. Not everything in life is for everyone. People have access to rrsp's and tfsa's. Those are tax management or deferral schemes also. But there are those that "cannot" take advantage of them.....so what?

You are confusing tax law relating to small business with tax law relating to corporations. The parts relating to small business do, in fact, achieve what they are meant to achieve. You have been told, over and over, the differences between the taxation for companies with active or passive income. You have chosen to ignore it. You have been told, over and over, that your many examples generally refer to illegal instances that are outside of the taxation laws in place currently. You have chosen to ignore that, in the hopes that if you say something quickly and closely enough, then people will believe it. But, it doesn't make it true.

Finally, why would the setting up of a corporate entity have an obligation to "serve the intended purpose of putting more Canadians to work"? That is the most telling and mystifying statement of all.
Why do you feel you should control the intent of why a company is created? There are many reasons but "putting Canadians to work" isn't one of them. You are confusing a business with a corporation and you can carry on a business without creating a company as the entity to do it.

Avoiding and managing taxes is not illegal. It is smart to do what is available so that the impact is not greater than the laws allow and so it fits the needs of the particular person or corporation (legally a person). Tax evasion is illegal and most of the instances you have brought up are instances of tax evasion.

[Muzza]

Merry wrote

Of course they're taking a risk. If you go live in a one industry town, be it mining or logging, chances are that house prices are extremely high when the industry is doing well (and very expensive rental accommodation is in short supply, or non existent). The combined cost of the expensive housing, and expensive everything else in such towns (from groceries, to clothing and furniture) soon eats up a lot of what, at first blush, sounds like a very high salary. Then, when the industry moves from boom to bust (as it inevitably does) the worker is now stuck with a massive mortgage and no income, in a town where there are virtually no buyers for your house.

You're joking right??? You are equating someone who risks all their life savings and sacrifices family life for years, works longs hours, often for little pay, to someone who moves to a town for a good paying job with no more responsibility than to show up for work each day???

As my uncle who did very well once told me "It is easy to become rich. All you have to do is work 18 hour days for about 20 years, lose your lifestyle and family to divorce because you were never there, and risk everything you own". That is exactly what happened to him.