Archive for March, 2011

This and That: Home insurance, portfolio construction and more…

March 31, 2011


Royal Canadian Air Farce’s Roger Abbott passed away recently. Thanks for all the laughs Roger and may you rest in peace. In the following skit, rich sheiks are wondering how they are going to survive low oil prices.

Now on to this week’s selection of interesting articles:

  1. Rob Carrick reports that insurance companies have actually been going easy on people buying home insurance. As a homeowner whose rates went up 14 per cent and 28 per cent in the past two years, all I can say is: Gee! Thanks guys!
  2. In a column in The Star, Morningstar’s Rudy Luukko blames Canada’s “world-class bundling” for our high mutual fund fees. He urges investors to shop around and make price comparisons.
  3. Larry MacDonald highlights the five most overlooked tax tips courtesy of tax-preparer H&R Block.
  4. Canadian Financial Stuff reminds us to regularly change the password for online access to bank and credit card accounts.
  5. Thicken My Wallet wears his lawyer hat to answer the question: Can you lose your home as a victim of real estate fraud?
  6. Michael James doesn’t think eliminating GST on mutual funds will help investors all that much.
  7. Money Smarts Blog takes a closer look at the claim that Canadians are withdrawing from RRSPs at an alarming rate and finds that the fears are overblown.
  8. The Blunt Bean Counter explains why it is important to include valuable collectibles in the will.
  9. In a pair of related blog posts, Larry Swedroe explains why even very conservative investors should include some stocks in their portfolio and why even very aggressive investors should have some bonds.
  10. A Canadian Money Forum member shared his experience with literally flushing money down the toilet.
  11. My Own Advisor explains why he hates debt. I hate it too and it’s a great feeling not owning anyone a single red cent.

That’s it for this week and have a great weekend everyone!

Jack Mintz on Family Taxation

March 31, 2011


In an article titled Taxing Families: Does the System Need an Overhaul? that appeared in a publication put out by the Institute of Marriage and Family Canada, Prof. Jack Mintz of the University of Calgary argues that our current tax system is unfair to families with one working parent. Prof. Mintz addresses the criticism that one-income families don’t incur some significant expenses that two-income families do such as childcare. He acknowledges that the criticism has some merit but can be addressed by making adjustments to the tax system. One suggestion he makes is to adjust the personal exemption downwards for the stay-at-home spouse and better recognizing the costs incurred in earning a living.

None of the problems associated with family taxation are insurmountable. The basic aim is to achieve efficiency and fairness under the tax system. It is impossible to see how limiting taxation to individual taxation supports these principles.

Nine industrial countries apply the family taxation principle. The French and Portuguese systems aggregate family income but explicitly allow for family size to reduce tax payments. The Czech Republic, Germany, Ireland, Luxembourg, Poland, Switzerland and the United States allow family members to file jointly and split income. Other industrialized countries rely primarily on individual taxation but often allow for family tax principles such as the transferability of deductions and credits or joint filing or splitting of income of some sort.

Prof. Mintz goes on to propose three ideas for implementing a system of taxing families. Income splitting is one of them but Prof. Mintz says that while it may be the simplest, it does not address criticisms about equitable treatment of families.

Family Tax Cut: A Tax Cut for the Rich

March 30, 2011


The Family Tax Cut that the Conservatives say makes “the tax system fairer” disproportionately benefits one-income families with very high household incomes. I ran some numbers using the excellent Income Tax Estimator available here to find out how much benefit accrues to a one-income household with two children at various income levels. If you look at dollar amounts, families with incomes of $50K or less will save little to nothing under the Tory income-splitting proposal. But, as you can see in the following graphic, families with household income exceeding $100,000 will save substantial amounts on their income taxes.

[Tax Savings in Dollars with the Family Tax Cut at various income levels]

One could argue that, of course, higher income families would save more because they pay more in taxes. So, let’s look at the percentage of income tax a household could save when the Family Tax Cut is implemented. Ideally, what we’d like to see is lower income households saving a higher percentage on their income taxes than a household with a higher income. But, as the following graphic shows, that’s not the case with the Family Tax Cut. A household earning $50K will save 13% on their federal income taxes, which is less than the 16% that a household earning $200K would save. Single-income households with a household income of $90K will save a stunning 29% on their federal taxes.

[Tax Savings in Percentage with the Family Tax Cut]