The CRA is a corporation, and their main line of business is collections or as they call it "to
administer tax". They are effectively a collection agency. In Alberta, they only adminster personal
income tax not corporate.
The Tax Court of Canada
The tax court of Canada is a specialized court of law whose jusisdiction extends to several Acts of
parliament, and most notable the Income Tax Act, the Excise Tax Act, and several provisions of the
Employment Insurance Act.
This is a superior court to which individuals and companies may appeal to settle disagreements with
the Canada Revenue Agency on matters of income tax, GST and employment insurance.
The Supreme Court of Canada
The Supreme Court of Canada is Canada's final court of appeal, the last judicial resort for all
litigants, whether individuals or governements.
The Canada Revenue Agency
CRA loses many cases that are appealed to the Supreme Court of Canada.
The Supreme Court of Canada over the years have repeatedly said to the CRA:
Taxpayers have the right to structure their affairs in a way that minimizes taxes.
Never ever give the CRA originals of anything! They have a history of accidentally losing documents.
Dealing with the CRA
Don't ever take what an agent says on the phone as fact, get it in writing.
Go to the rulings department to get it in writing.
object if you don't agree. (appeal)
make applications to the fairness and Tax Ombudsman.
you have 90 days to object to an assessment (the blue paper in your taxes)
stay in honour with them.
Disclaimer
... nor is it responsible for the accuracy, reliability or currency of the information contained
on our Web site and supplied by external sources.
In week two of the Kustom Design Level 1 Financial boot camp we covered budgeting, good debt vs. bad debt,
and we discussed some advice that is now obsolete.
Below are my notes from the class.
Financial Calculator:
N = Time/Periods
I/Y = Interest/Year
PV = Present Value
PMT = Payment (negative value)
FV = Future Value
COMP = Compute
E.G. How many years if you could only contribute $400 monthly?
FV = 700000
PV = 0
I = 6%
PMT = -$400
N = 38.05 (38 years 1 month or 457 months)
Top 3 Credit Bureau's:
Equifax
TransUnion
Northern Credit
Steps to fix your credit report
deal directly with the company.
order investigation by equifax.
make a note on your credit report.
Always pull your own score before you go to borrow (soft check).
RBC credit alert notifies you when something happens to your credit score or report.
Improving Your Credit Score
remains on your credit report for six years.
a hard check can knock 10-20 points off your score.
can fall over night.
good credit will save you money.
lower interest on mortgages/loans.
650 bottom line for most lenders.
5 Main Ares Used in Calculating Your Credit Score
Your payment history
Amounts you owe
Length of your credit history
Types of credit used.
Your new credit
Top 5 Ways to Improve Your Credit Score
Pay all bills on time.
Keep revolving credit balances low.
Limit your credit.
Be focused when you go for credit.
Manage your credit responsibly and regularly.
Some agreements allow lenders to check your credit when they want.
Brokers are good, they check your credit once then shop it around for you.
If you have a good score you can negotiate a lower rate with your lender.
If your write them a letter, then it is documented.
Open Circle (ever expanding)
Closed Circle (fixed)
The Closed Circle
Obligations
Necessities
Wants
Issue a tracking system.
Total of expenditures.
Capture sources of income.
Determine material wants.
Determine between Obligations, Necessities or Wants.
Prepare the closed circle.
Compare income and expenses.
notes
you are much more likely to get something if you write it out.
split and list wants.
Calculate your expenses first.
Only take what you need from your business, nothing more.
When you take good care of what you have been given, you will receive more to take care of!
Overflow
Overflow can be used for:
* eliminating bad debt.
* planned giving.
* investing.
* other agreed upon items that help you achieve your goals.
What about cash flow?
not all funds come when you think they are coming.
use your cash flow wisely and don't go over your budget.
2 ways to increase cash flow:
* more cash flow coming in
* less expenses going out
incoming cash flow can be active or passive.
Step 2: Eliminate Bad Debt
Good Debt:
* Has asset attached.
* Is tax deductible.
* leverage used to invest. (rental property)
Bad Debt:
* Consumer (credit cards)
* Non Deductible (Mortgage)
* High Interest
Example:
You owe $10,000.00 on your credit cards with an average interest rate of 20%.
The standard minimum payment for $10,000.00 is $250.00.
If that is all you pay each month, it will be 37 years and more than $19,000.00
in interest charges before your balance is paid off.
What if you have more than one credit card to pay off?
List outstanding credit card balances.
Divide each balance by the minimum payment required.
Do this for all of your credit cards.
List them in order of payments from lowest to highest.
Apply your extra $10.00 a day to the one with the least amount of payments.
Example
Mastercard
balance of $3000 @ 19.99%
Minimum payment of $300.00
Visa
balance at $4000.00 @ 17.99%
minimum payment of $450.00
Calculation:
MC $3000.00/$300.00 = 10
Visa $4000.00/$450.00 = 9
Pay off your Visa first, then your mastercard.
Eliminating Bad Debt
Don't be a slave to interest
all credit card interest.
high interest loans, notes and credit lines.
non deductible loans, notes and credit lines.
all non deductible mortgages.
family debt with no repayment structure.
Bad Debt elimination strategies
* refinancing at lower interest rates
* consolidation
* depositing paychecks to line of credit.
* smith maneuver
What We Were Taught
Work hard and you'll get job security.
The company pension plan will take care of you.
Canada pension plan will take care of you.
save money
get out of debt
invest for the long term.
diversify your investments.
turn your money over to an expert - someone you can trust.
you need to have money to make money.
to good to be true? it probably is.
Why working hard is obsolete advice
income tax was first imposed in Canada in 1917 on both individuals and corporations, collected primarily by the federal government.
Canada has a graduated tax system, as do most provinces. (Alberta does not 10%)
tax rate can exceed 50% annually in many provinces:
federal and provincial surtaxes
provincial health premium taxes
other mandatory government premiums (not officially taxes)
the government has the right to get paid its taxes at the same time as employees.
business owners are allowed to pay their expenses before they pay their taxes.
this massive loophole is one of the reasons that the rich get richer.
Therefore, the harder you work as an employee the more you pay in taxes.
The RRSP
Positives:
* tax deductions
* long term growth for future income
* forced savings program
Negatives:
* eventually taxed
* limit on amount
* no collateral advantage
* investment restrictions
* age and income restrictions
* government control
* interest on load not deductible
* liquidity
* cannot claim losses
* no tax savings on capital gains or dividends
notes
interest on loans are tax deductible for other investments but not for RRSP's
Why "Save Money" is obsolete advice
after the U.S. went off the gold standard, a dollar saved was no longer a dollar earned.
Prior to 2000, in fear of Y2K the government of the U.S. printed billions of dollars to keep the economy afloat.
9/11, Iraq War and Bailouts the US printed massive amounts of money again.
at the same time China entered the World Trade Organization and became the biggest creditor in the world and the U.S. became the biggest debtor.
As our economy floats on the U.S. dollar, the Canadian dollar will continue to be devalued.
The core Consumer Price Index determines the rate of inflation, but it is missing fruit,
vegetables, gasoline, fuel oil, natural gas, mortgage interest, intercity transportation, tabacco
products as well as the effect of changes in indirect taxes on the remaining components.
In spite of house prices doubling, and tripling... and oil going from $10.00 a barrel to $90.00 a
barrel, the economists say there is no real inflation. That's because economists watch the CPI, not
the price of assets.
The bank can leverage your dollars to the tune of 20 to 1.
The savers lose because the value of their dollar goes down, and the bank has created 20 more
dollars from their 1 dollar.
Notes
The more currency they inject, the less it is worth. (supply and demand)
Buy GOLD!
Why "Get Out of Debt" is Obsolete Advice
Good debt is money leveraged to make more money such as the real estate investment.
This is debt that someone else pays for you.
Bad debt is consumer debt; money spent on consumable items.
This is debt that you pay for.
The majority of people think that all debt is bad because they have not been trained to use debt properly.
Why "Invest for the Long Term" is Obsolete Advice
All mutual funds require fees regardless of whether you earn money or lose money.
Canadians pay much more for the same services than Americans do.
It is possible to receive higher rates of return by making your money work for you. It doesn't
make sense to simple hand over your money - to complete strangers - and expect to receive a return
at some point in the future.
You have to be willing to invest in your financial education so that you can see the potential in
any oppurtunity.
"Rule number one is don't lose money" - Warren Buffet
"Rule number two is always remember rule number one." - Warren Buffet
"Diversification is required when investors do not know what they are doing." - Warren Buffet
Why "Diversify" is Obsolete Advice
Diversification is like going to the racetrack and betting on all the horses; you may not lose much money, but you also won't make much money.
Many financial advisors recommend diversification because they don't have the ability to pick the winner.. so they play it safe and recommend that you "bet on all the horses".
There are three basic asset classes:
Paper Assets: promissary notes, bonds etc.
Real Estate: raw land or buildings
Businesses: publicly held or private
The five biggest markets to invest in are:
* The Stock Market
* The Bond Market
* The Real Estate Market
* The Currency Market
* The Commodities Market
The Smith Manoeuvre
Get a re-advanceable mortgage
Liquidate non-registered assets (like stocks held outside of an RRSP) into cash.
Use this cash as a down payment on your mortgage.
Make mortgage payments like normal.
Re-borrow $1 for every $1 of mortgage principle you pay each month.
Invest that borrowed money at a higher rate of return than the loan interest you pay.
Deduct your investment loan interest and use the tax savings to pre-pay your mortgage.
Repeat steps 3-7 until your mortage is paid off!
This one is a little confusing, because now you have an extra interest payment to make against the
line of credit portion of the re-advanceable mortgage. I've read that you're supposed to capitalize
the interest by borrowing from your line of credit to pay the interest payment on your line of
credit. This sounds very risky! - mo
paraphrased: "Accumulate assets that are valuable whether or not the financial system crashes." - Mike
The class is taught by Michael E. Lepitre. Mike is super passionate about money, and it shows when he's
teaching.
Financial freedom: Where you do not have to work for money. Instead money works for you providing
plenty to fulfill your purpose, enjoy life and allow your wealth to grow for future generations and
charity.
The 5 Steps
Develop a closed circle budget.
Eliminate bad debt (consumer & mortgage).
Legally Minimize Taxes.
Wealth accumulation & increase passive cash flow.
Wealth preservation.
Today's educational system focuses on:
academic education: ability to read, write and compute.
Professional education: learning a trade to earn money, to get a job.
NOT financial education: learning how to make money work for you.
Classes of Investors
Non-investor (the poor)
consume everything they earn.
Active Investors
these people are entrepreneurs.
They invest first in becoming financial experts.
Passive Investors (the middle class)
believes in good education, a high paying job, home ownership and saving for retirement through a pension.
Turns their money over to financial experts to invest.
Key Differences
Passive Investors
no control
higher risks
banks will not lend money to them
higher taxes
worries about market crash
low returns
plan can run out of money
may never retire
Active Investors
has control
lower risks
use bank's money (OPM)
uses insurance
may pay zero taxes
welcomes market crash
high returns
plan provides for generations
may retire early (choice)
Cash Flow Quadrants
E Employee - You have a job
S Self Employed - You own a job
B Business Owner - You own a system & people work for you
I Investor - Money works for you.
Employee
earns income, works for money, has a job.
Believes the harder you work, the more money you make.
Believes more money will solve their financial problems.
Searches for a safe secure job with good pay and excellent benefits.
Believes the level of formal education relates directly to receiving a higher income.
Taxes are their number one expense.
Invests in RRSPs and mutual funds.
Self Employed
hardest working people on the planet.
Usually wear all the hats.
90% fail after 5 years.
Work harder and longer than most employees and bring their work home with them.
Like to "be their own boss" and do it themselves.
Seek to be in control and resist delegating.
Business Owner
surround themselves with smart people from all four quadrants
learn technical skills:
reading financial statements
marketing
sales
accounting
management
how to lead people
pay very little in taxes
protected by using corporations and trusts.
Investor
knows that you must invest to be wealthy
have money working for them
do not invest in RRSPs
main focus on ROI (return on investment) and cash flow
pay the least amount of taxes
invest utilizing corporations and trusts
investment income
interest income: taxed very high
capital gains income: taxed at 50%
if you buy one share at $10. Then watch it go up to $20, and sell it you will be taxed on the $10 increase at 50%.
dividend income: most tax advantageous
There are people who become wealthy in each quadrant and sometimes derive income from different
sources.
History of Money
Before money, the barter system was used.
Silver, gold and other metals were the first forms of the monetary system.
Gold became the standard of currency banking.
The fiat money system has been tested for 2000 years (never with any long term success due to debt.)
The separation process of gold from paper money began in 1933.
In 1971, Richard Nixon took the US off of the quasi-gold standard.
Savers become losers because they were now saving a currency instead of saving money.
The problem with saving a currency is that a currency is designed to go down in value.
Wake Up Call
Banks make a tonne of money off of our money.
E.G.
If I deposit $100,000.00 in to the bank and I receive an interest rate of 3%. I can expect to make
about $3000.00 in a year.
The bank could then lend out $100,000.00 at a rate of 6% and make $6000.00.
So far the bank has lost $3000.00 but gained $6000.00, so that would be about a 100% return for
them.
Apparently, banks can actually lend out 20 times that original $100,000.00 I put in. Which means
that bank can lend out $2,000,000.00 at 6% and get a return of $120,000.00 in a year. It costs the
bank $3000.00 and earns them $120,000.00. This sounds crazy!