Archive for October, 2006

A Tax on Income Trusts

October 31, 2006

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The minority Tory government sprung a Halloween surprise saying that it will tax distributions by newly formed income trusts, specifically targeting the recent conversion of Telus (TSX: T) and BCE (TSX: BCE). Existing trusts have a four-year grace period after which they will be subjected to the new tax as well.

I predicted that the government was likely to revisit the issue of income trust taxation but I am very surprised that this Tory government has the political will to move on this matter. Tomorrow is probably going to be an ugly day for income trusts in general and BCE and Telus in particular. Note that just like other jurisdictions, REITs are exempted from the proposed taxes.

Penny Wise, Pound Foolish

October 31, 2006

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As you can imagine, we are very careful about spending money. We clip coupons from the Sunday paper, buy necessities in bulk when they are on sale, brown bag our lunches, find ways to save on recurring expenses and avoid a daily latte habit. Sounds great, right? But then, I go out and buy a van that sat in our driveway most of the year.

The story begins last year. We already had a more-than-a-decade-old Honda Accord that I used to commute and my wife used to take the bus to work. When our twins were born, I bought a van (pre-owned, gently used, at a fair price) to ferry around the babies and their visiting grand parents. My wife was on parental leave for most of the past year and thinking back, we rarely used the van (mainly for visits to the paediatrician, we could have just as easily used the car). I can think of only a handful of times, when we actually needed the van.

I bring this up because I saw an ad for the same model van with similar mileage selling for $7,000 less than our purchase price in the local paper. Add in the insurance and oil changes, I figure that we had spent roughly $8,000 on a van parked in our driveway most of the year. In hindsight, I should have rented a van for the few times we really needed it and purchased one a year later, just before my wife went back to work.

Many personal finance books advise you to cut the small expenses to get ahead financially. While the little expenses left unchecked slowly drip away your savings, the big ones like automobiles and homes tend to drain it in an instant.

Book Review: The Naked Investor

October 29, 2006

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[Cover Image of The Naked Investor

I picked up this book on the recommendation of a reader and I am glad I did. The author, John Lawrence Reynolds, delivers a scathing criticism of the investment industry in Canada for being more interested in lining its pockets than its fiduciary responsibility towards the average investor. The subtitle of the book Why Almost Everybody But You Gets Rich on Your RRSP is an excellent summary of the author’s thesis.

Mr. Reynolds begins each chapter of the book with a real-life, often tragic tale of average investors exploited by mutual fund salespeople, brokers, banks, media gurus, financial advisors or scam artists and then finding the industry fighting compensation attempts every step of the way. Meanwhile, regulatory agencies in Canada, unlike those south of the border, do not carry a big stick and even the criminal justice system is far too tolerant of white-collar crime. The author’s outrage at the industry tactics drips from every page of the book.

The author also spells out how average investors can invest for themselves using the Couch Potato Portfolio and suggestions for avoiding fraud. If you invest in mutual funds or have a financial advisor or stockbroker you owe it to yourself to read this book. As the author says, “You Are David, They Are Goliath and You Don’t Have a Slingshot”.