Archive for July, 2010

This and That: Taxwiki, Credit card rewards and more…

July 29, 2010

  1. Prof. Benjamin Alaire of the University of Toronto has recently launched a new, non-commercial, website called that aims to provide better, faster and more accurate tax guidance to Canadian taxpayers. The wiki’s materials are based on original CRA documents which are updates after consultations with authoritative resources, including the Income Tax Act and its regulations, rulings and other disclosures of the CRA, as well as decisions of the Tax Court of Canada , the Federal Court of Appeal , and the Supreme Court of Canada to provide straight answers.
  2. It is not entirely surprising that credit card rewards raise the retail costs for everyone. What is surprising is that this amounts to a transfer of wealth from low-income to high-income households. A study by the Federal Reserve Bank of Boston that was widely reported in the media found that on average, those with a household income of $20,000 or less pay $23 and those with a household income of $150,000 or more receive $756.
  3. Jon Chevreau points out that a significant number of seniors are missing out on Canada Pension Plan, Old Age Security and Guaranteed Income Supplement benefits that they are eligible for.
  4. Ellen Roseman excoriates Enbridge for undercharging customers under the Budget Billing Plan and then socking them with a huge monthly bill.
  5. Larry MacDonald takes a look at some estimates on when all that monetary growth will trigger inflation.
  6. Canadian Financial Stuff finds that pets are hugely expensive.
  7. Preet says that current benchmarks for active management ignore such things as price of advice. Problem is the majority of investors receive little value for the advice portion of their mutual fund fees.
  8. Million Dollar Journey featured a guest post on the risks in bonds and their suitability for portfolios.
  9. If you rent, Financial Highway has ten reasons why you need renter’s insurance.
  10. Turns out getting a mortgage ain’t so simple anymore. The Financial Blogger what’s required to obtain a mortgage.
  11. After a free lunch gave him an upset stomach, Michael James asks an eternal question: Why is FREE so irresistible?.

I’m unable to highlight all the articles worth checking out in my weekly round up but you can check out the interesting columns I come across in my Twitter feed.

No post on Monday owing to Civic Holiday in Ontario. It promises to be another glorious summer weekend in Ottawa. Have a great weekend everyone.

A scheme to save 100 percent of income tax? No thanks

July 28, 2010


Larry MacDonald wrote a post today on a scheme to reduce up to 100 percent of your income tax. The scheme purportedly involves purchasing tax losses from R&D firms and when Larry asked the promoters if it would pass muster with the CRA, they claimed that “CRA should not disallow the tax deductions”. No surprises there. That’s precisely what promoters behind tax shelter gifting arrangements claim (see Beware of tax shelter donation arrangements, 19 August 2008) and the CRA has a long record of reassessing taxpayers and denying the donation.

Even if we ignore the elephant in the room — the obvious risk that CRA would subject any tax avoidance scheme to extra scrutiny — a scheme with a long history already exists that allows taxpayers to save (up to) 100 percent of their income tax. It is called flow-through shares (FTS) and it allows certain corporations involved in mining, oil and gas, renewable energy and energy conservation sectors to transfer exploration and development expenses to investors in return for equity investments. The investors are allowed to deduct the renounced exploration expense from their income.

If saving on income taxes are the main goal, FTS provide a much less risky way to do so. However, FTS are not without investment risks as I pointed out in this earlier post (See Comment on Flow-Through Funds, 26 March 2007).

From the archives: Give Yourself a (Financial) Education

July 27, 2010


In the past, most people can get by just fine without learning much about investing or building a portfolio. Pretty much everyone belonged to a defined benefit plan and their financial lives were much simpler. These days, financially speaking, most of us are on our own. It goes without saying that DIY investors need to be familiar with the basics of investing. Even those investors who work with an advisor need at least some basic investment knowledge to (a) hire a competent professional and (b) be confident that the advisor is managing their money well.

In a long-running rebate on the merits of Group RESP plans, a remark by a commenter touched a nerve:

To work with mutual funds or stocks, parents need to know what they are doing. This takes a lot of time and planning. I am too busy for that.

As you can imagine, I am not very sympathetic to the argument. If you are like me, you are exchanging eight hours of your precious time every weekday for a pay check and you owe it to yourself and your family to be an effective steward of your money. The reality of modern life is that, financially, we are on our own. Our retirement, our kids’ education and our general financial well being depends on how well we look after our money.

To become a successful investor, you should lay a strong foundation by taking the time to read a few good books. After that, you only need a few hours to devise an asset allocation, invest accordingly and spend about fifteen minutes every year to rebalance your portfolio.

If you have worked your way through my recommended books, you don’t have to sacrifice your leisure hours (unless you buy individual stocks or write a blog) to constantly keep up. Over the years, I’ve learnt both from reading and from experience that there are only a handful of rules for being a successful investor:

  1. Don’t take stupid risks.
  2. Diversify.
  3. Minimize expenses and taxes.
  4. Don’t trade too much.

That’s all there is to investing. Now, you can get on with gardening or photography or whatever with the confidence that you will do better than the vast majority of investors who are busy chasing the latest hot tip they heard on Market Call.