# Tax reduction ideas?



## punter (May 6, 2012)

Hey all.
I'll be starting an electrician apprenticeship soon and the salaries tend to go like this:
1st year 29000
2nd year 36000
3rd 47000
4th 56000
Journeyman 72000.

I'll probably ask my dad's accountant about some of these questions, but as far as good tax savings ideas, how do these rate?
1.Maximize RRSP contribution.
2.TFSA - income fund strategy. 
3.Dividend investments- outside tax saving account.
4.Rental property separate from your primary residence, thereby having someone else pay the mortgage while interest, utilities, and other expenses are written off. (But rental income here would add to yearly employment income thereby possible increasing taxes.)
4b. Multiple rental properties, but creating a small business (sole proprietorship). Not sure how different this is from #4 terms of taxes.
4c. Multiple rental properties, but creating a corporation so that rental income is taxed at a lower rate. 

Sorry. I'm kind of new to most of this, but I'd appreciate some opinions. Also, maybe some book recommendations? I was going to pick up Real Estate Investments for Dummies by Eric Tyson to get my feet wet. Any decent small business or tax book recommendations would also be appreciated. Thanks for your time.


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## Brenner (Jan 17, 2012)

I would hold off on the RRSP contributions until your are an Journeyman, and focus on TFSA until then.

Buying a rental property, or renting our a portion of your personal residence, should be viewed as an investment decision with tax consequences, not the other way around.

There may be special tax deductions and/or credits available to apprenticeships for the purchase of equipment & supplies. Check this out, http://www.cra-arc.gc.ca/tx/ndvdls/.../ddctns/lns206-236/229/trds/trdsprsn-eng.html


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## asterbin5 (Oct 1, 2015)

If you work for yourself or have a side business, don’t be afraid to take the home office deduction. This allows you to deduct the percent of your home that is used for your business (on Schedule C, 1040). If the guest bedroom is used exclusively as a home office, and it constitutes one-fifth of your apartment’s living space, you can deduct one-fifth of rent and utility fees for your home office.


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## leslie (May 25, 2009)

* First save your income - aim for 20% to include 15% long term and 5% for planned big ticket expenses.
* Save pot for emergencies = 6 month's living expenses. Keep this safe and liquid and so it will earn next to nothing - cashable GICs or savings accounts. Since you will have TFSA room protect that income there, until you have additional savings earning larger returns that would use up all the room.
* Your decision to keep dividends out of the tax shelters makes it sound like you have drunk the cool-aid regarding 'losing' the dividend tax credit. The only time dividends should be in a taxable account, when a tax shelter is available, is when you are in the bottom tax bracket where the marginal tax rate is 0%, and you don't expect any capital gains from that assets.
* Home ownership (and even more so for rental real estate) requires a lot of time and attention. You need to have an emotional reason to want to own RE before that is a net positive trade off. (unless of course you expect great capital gains to continue). 
* Don't make the RRSP your first tax shelter. You should expect /hope your tax brackets to be higher later in life. Store the savings in a tFSA until you hit those higher tax brackets.


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## amack081 (Jun 23, 2015)

1. One thing you can do with your RRSP is make contributions for the next four years, but not take the deduction for income tax purposes until you become a journeyman. This strategy will allow you to reduce your taxable income at your highest marginal tax rate. The major drawback if that you lose the time value of money assuming you would receive a refund.


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## leslie (May 25, 2009)

Don't agree with amack081's idea. Commonly heard from experts, but they fail to understand the RRSP's net benefit/costs. It is never the best option to contribute to an RRSP and delay taking the deduction. See http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2616276


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## james4beach (Nov 15, 2012)

More important than everything else is to (1) try increasing your income and (2) keep your spending low. Pursuing higher incomes and controlling your spending will do FAR more for building wealth than any kind of investment strategy you'll read on this forum.

I don't see any reason you need to pursue any kind dividend-based strategy at all. Dividends simply provide cash pay-outs, _but they do not increase returns_. So they're useful for people in retirement who want to extract cashflow from their investments.

I don't know what you mean by "income fund" strategy, but I strongly recommend investing in GICs as they provide good returns with no risk, and the TFSA is good for GICs because otherwise interest income is heavily taxed.


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## Bobbyjohn (Jul 28, 2015)

This pretty much summs it up tbh.


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## P_I (Dec 2, 2011)

james4beach said:


> More important than everything else is to (1) try increasing your income and (2) keep your spending low. Pursuing higher incomes and controlling your spending will do FAR more for building wealth than any kind of investment strategy you'll read on this forum.


Reminds me of this quote from Dickens: "Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."


> I strongly recommend investing in GICs as they provide good returns with no risk


Minor quibble with this statement, GICs have interest rate risk because you've locked into a rate for the full term. What happens if there is an significant increase in interest rates over the term? I realize this hasn't happened recently, but look back to the late 70's and early 80's time frame. There is also liquidity risk should an investor need to cash them early. Generally both these can be classified as low risk, but they are risky none the less.


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## james4beach (Nov 15, 2012)

True that GICs have some interest rate risk, but the GIC ladder is a good vehicle to adjust to changing interest rates with time


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## agent99 (Sep 11, 2013)

james4beach said:


> True that GICs have some interest rate risk, but the GIC ladder is a good vehicle to adjust to changing interest rates with time


Can't imagine a young person investing in GICs, especially at current rates. He has a whole life ahead of him. No reason not to be 100% in equities. Especially ones like all our major banks that not only pay dividends, but also grow. Don't know of any GICs that would have had a Total Return of over 15% p.a. over past 20 years (RY & TD did). $1000 invested in RY in 1995 would today be worth more than $20,000. So my advice would be to save in a high interest savings account and once in a while when sufficient funds have built up, buy a blue chip Canadian stock, starting with the banks. And then add other dividend growers. Reinvest the dividends using the DRIP programs most offer.

Regarding increasing income - Perhaps do some work on side in evenings and weekends. We find it hard to get small contractors, but do sometimes find a tradesman prepared to work a little overtime on small jobs. There may be a licensing problem for electrical work, so check that out first. Might just require inspection?


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## CPA Candidate (Dec 15, 2013)

Responding to a thread by an OP that hasn't logged on in over 2 years.


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## agent99 (Sep 11, 2013)

CPA Candidate said:


> Responding to a thread by an OP that hasn't logged on in over 2 years.


Are you referring to james4beach 

But you are of course right. But still made for something to talk about


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## Just a Guy (Mar 27, 2012)

Real estate should never be a "tax loss" investment. If you're losing money, then it's probably not a good investment to begin with. 

Real estate is a tax deferred investment if done right. You should be able to generate quite a bit of wealth while deferring the need to pay taxes on it. Think of it as an rrsp type of savings plan.


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## amack081 (Jun 23, 2015)

leslie said:


> Don't agree with amack081's idea. Commonly heard from experts, but they fail to understand the RRSP's net benefit/costs. It is never the best option to contribute to an RRSP and delay taking the deduction. See http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2616276


The paper/article has certain bias' as it expects a return of 10% and a marginal rate of 15%. This is flawed for the following reasons:

*There is no guarantee of a 10% return. 
*Tax taken off to determine the initial principal invested is wrong. RRSP contributions don't reduce taxable income, they are applied again income from all sources that determines taxable income.
*OP after 5 years would be in a 22% bracket. 
*The time table used in the article is 10 years, which amplifies the return on investment.


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## james4beach (Nov 15, 2012)

agent99 said:


> Can't imagine a young person investing in GICs, especially at current rates. He has a whole life ahead of him. No reason not to be 100% in equities.


Let me share some reasons why I don't put very much money into stocks

1) Stocks don't always go up, even over multiple decades.

2) My total fixed income return back to early 2000s when I started, is very comparable to TSX total return. From my perspective, I have not lost out on anything by being heavily invested in GICs and bonds. In fact, I've experienced similar long-term returns with far less volatility. At least within the time span I have been investing, I made the right choice by avoiding heavy stock exposure. Similar returns with much less risk, that's a *win*.

3) I've seen friends & family suffer some horrible losses in stocks. We have some family friends who got wiped out by Nortel. A family member lost a ton in Bre-X. My dad lost tens of thousands $ in a fraudulent mutual fund. A family friend, a professional accountant, lost a fortune in Citigroup & US financial stocks. Academic colleagues of mine lost their money in tech stocks. One of my closest friends lost tens of thousands in a US REIT.

4) I see the stock market a fraudulent cesspool. When I think of 'stocks' the images that flash in my head are things like stock-pumping circus freak Jim Cramer, mortgage fraudster "tan man" Angelo Mozilo, and a steady stream of crooks over the years who have found limitless ways to screw shareholders out of money

5) I think the stock market is currently unstable and unreliable. The Flash Crash in 2010, and a series of other very strange hiccups since then (e.g. as recently as August -- IVV dropped 25% intraday, and XIU dropped 7%) are bizarre events that were not happening pre-2008. I think the current market is highly unstable and at risk of tremendous volatility events.

That's why stocks don't appeal to me, today. So what will convince me to get into stocks heavily? If I became confident that the stock market was stable and back to its pre-2008 form, and if I thought it's possible to avoid the kinds of fraudsters and crooks who robbed my friends & family... then I'll go heavily into stocks. But given the tremendous instability as recently as August, it will be a long time before you see me heavily into stocks.


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## The_Tosser (Oct 20, 2015)

james4beach said:


> 2) My total fixed income return back to early 2000s when I started, is very comparable to TSX total return. From my perspective, I have not lost out on anything by being heavily invested in GICs and bonds. In fact, I've experienced similar long-term returns with far less volatility. At least within the time span I have been investing, I made the right choice by avoiding heavy stock exposure. Similar returns with much less risk, that's a *win*.


Sing it brother. This is true. I am amazed and frankly down-right embarrassed by how much we've left on the table with this brilliant risk-reward trade.



> 5) I think the stock market is currently unstable and unreliable. The Flash Crash in 2010, and a series of other very strange hiccups since then (e.g. as recently as August -- IVV dropped 25% intraday, and XIU dropped 7%) are bizarre events that were not happening pre-2008. I think the current market is highly unstable and at risk of tremendous volatility events.


You could just as easily look at these as buying opportunities. If you trade IVV and see this action, what on earth would one be doing if not buying that drop hand over fist? The fact is these are rare events and happen quick. 10-30 minutes later and your opportunity is lost. This is not a reason to shun equity. These are reasons to take the gift they're giving you. The drop you're talking about was that Monday, Aug 24th. I don't know how early most of you were up and at the screen, but the US side was already limit-down by 9AM EST. It was mass carnage. Those are the very days you look for examples like you're citing here. See it, take it. There are all sorts of circuit breakers in place that do work, that we didn't have before. You know before hand where they're going to be forced to stall the market too. This is good info. We traded the ES that morning. It could take a week to get 10 pts depending on the action. We got 50 points in 9 minutes that morning. Start looking at them as gifts. (Had i held it would have now been 150+ points buts that's another story and is of no concern).




> That's why stocks don't appeal to me, today. So what will convince me to get into stocks heavily? If I became confident that the stock market was stable and back to its pre-2008 form, and if I thought it's possible to avoid the kinds of fraudsters and crooks who robbed my friends & family... then I'll go heavily into stocks. But given the tremendous instability as recently as August, it will be a long time before you see me heavily into stocks.


A simple fix for that is buying etf's. I doubt the handful of big-boy firms are going to screw you. You can't run around with that amount of fear all the time. It's never going to get to the point that there will never be frauds so what you're looking for will never exist. To say you can't avoid it is untrue. iShares, Horizon etc etc etc...

Do not misunderstand. I am with you on stock being unappealing today. I think they represents far more risk than reward and i am not at all afraid to say i am with you on the zero equity holdings and have been so for a few weeks now. This is not at all how most people look at it and that is fine, but I can and am very quick to react and change a position when i want to. Again most do not make such large moves if they move at all. Also when i am 'long equity' it's likely in some levered format so i don't need but a handful of weeks or months in any given year to do what most couch-taters will have to wait the whole year for, all else being equal.

I am not discussing 'styles' here, I am saying i am right here and now completely with you. Risk-reward, equities suck badly, imo. I've seen worse, but i don't like the odds at all. Just my opinion but people now sitting 100% equity - Zero cash, are nuts. No-one can tell me you can't broadly time something well enough to not see the risk-reward and shave a bit here or there. 

I am heavily into US 5 yr T's and getting my face ripped off right at the present moment, but since the Dec rate hike has been more or less now priced in (not to mention my bet is it's not going to happen but at least we know our risk) then I'd much rather be sitting in short-term bonds like yourself, knowing it's a much safer bet at the present time. It'll pay off well, it just might take an extra 4-6 weeks. No big deal. It's a good bet. We'll look at re-starting a long equities exposure once the top of the sundae gets shaved off again. I can't imagine it's too far away.


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## Moneytoo (Mar 26, 2014)

The_Tosser said:


> I am heavily into US 5 yr T's and getting my face ripped off right at the present moment, but...


Great encouragement! lol 1 year GIC at People's Trust yields more: http://www.peoplestrust.com/high-interest-accounts/todays-rates-2 

(Yes, I'm that fully invested nut with almost 100% in equities - and a few corporate strip bonds that yield 3%+ )


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## james4beach (Nov 15, 2012)

Great thoughts, The_Tosser 



> You could just as easily look at these as buying opportunities. If you trade IVV and see this action, what on earth would one be doing if not buying that drop hand over fist?


But that leads me to another question: why on earth are the market makers, arbitrageurs, and hedge funds not buying those opportunities either? The -25% situation on IVV, XLF, XLK & others only existed because all of those big boys refused to buy the initial -5% or initial -10%. This market is supposed to be highly liquid, including index futures that trade around the clock.

At one instant, for example, institutions see IVV down -15% and the index futures or SPY showing only -5%. If we believe the market is not broken, this is free money on the order of billions of $. Why did no institution arbitrage that? No institutions were willing to buy this; the fact many major ETFs crashed -25% (and let's remember thousands of stocks also hit circuit breakers) shows that no institutions were willing to buy stocks and ETFs.

If institutions and hedge funds won't buy it, I don't think it's wise for me to buy it. *There must be a reason they didn't buy* the discount and passed up on billions $ of instant profit.



> A simple fix for that is buying etf's. I doubt the handful of big-boy firms are going to screw you


I agree that ETFs are the solution to this concern of mine (providing they are derivatives-free and backed by a net asset value).


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## The_Tosser (Oct 20, 2015)

james4beach said:


> > But that leads me to another question: why on earth are the market makers, arbitrageurs, and hedge funds not buying those opportunities either? The -25% situation on IVV, XLF, XLK & others only existed because all of those big boys refused to buy the initial -5% or initial -10%. This market is supposed to be highly liquid, including index futures that trade around the clock.
> 
> 
> 
> ...


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## james4beach (Nov 15, 2012)

My understanding is that institutions and big guys do arbitrage in ETFs. There was a real arbitrage opportunity there, yet they refused to engage in it. Of course it does push the price one way or another... that's what ETF arbitrage is meant to do. They could arb IVV against SPY, or IVV against futures, or against mini futures, or IVV against the entire basket of stocks (including using the basket creation/redemption mechanism). So many ways to do it.

But they didn't do any of those things when IVV was down -10%, nor when it was down -20%. If they were doing it, they would have pushed the price upwards and the price would not have reached -25%


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## The_Tosser (Oct 20, 2015)

james4beach said:


> My understanding is that institutions and big guys do arbitrage in ETFs. There was a real arbitrage opportunity there, yet they refused to engage in it.



what can i say? You don't want to believe what I am telling you. I do it, you don't, yet you're telling me how it works.

This is the problem when you walk too far down the doomer path and a retail trader on top of that. Nothing I tell you will have you believe what is obvious and you have nothing good to say about gifts being dropped at your feet. Big money doesn't waste their time on etf's such as SPY, IVV etc. It's a pathetically weak play and a sad use of funds. It just doesn't happen. I won't even get into the US tax status of the two trades - Hugely different.

Maybe you're just not grasping the size of money that can be levered using very deep futures markets where it is simply impossible to do with the etf's.


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## james4beach (Nov 15, 2012)

The_Tosser, if you don't think institutions are arbitraging ETFs, then who exactly is doing it?

If I'm to believe what you're saying: large institutions don't actively arb ETF to keep the intraday prices near NAV. Is that what your assertion is?


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## The_Tosser (Oct 20, 2015)

james4beach said:


> The_Tosser, if you don't think institutions are arbitraging ETFs, then who exactly is doing it?
> 
> If I'm to believe what you're saying: large institutions don't actively arb ETF to keep the intraday prices near NAV. Is that what your assertion is?


James my friend let me spell out just the IVV etf happenings for you. Man you do love to waste time worry about utter nonsense don't you! Maybe if i give you the play by play you'll see why NO ONE waits around to play a few shares of IVV if it wiggles more than it should, especially since big money ISN'T WATCHING IT ANYWAY, lol.

James, now this is how the morning played out. IVV trade just over 13Mil shares that day. The "Drop" that you're seeing was on maybe 100K shares, TOPS. IVV was halted prior to this drop as per circuit breaker rules. It was again halted right after that.

So what you're telling me is "Hedge Funds' were sitting around all morning until then, waiting for the chance to waste their time on and ETF that may not even do anything abnormal at all and then all of a sudden 'spotted' a market anomaly and manged to get their money in for a few hundred K shares to divvy up among all of the players, lol, oh and then sit around while the rest of the market was moving but IVV was on a halt....

C'mon dude my kids wouldn't believe that. They're not even looking at it. By then the easiest money was already made..yes in futures, the same ones i told you about. 

You think we just sit around not knowing what we're going to play when these things happen? We all have our futures trades of choice and we go to them immediately. We don't eff around waiting for an improbable etf miss-step to occur and try to take it. Hell no, we take the trades that we already know inside out and backwards and there's more than enough liquidity to eat it all.

All of what you're crying about happened in UNDER A MINUTE. Hey it happens a lot, but very few people or firms get the trades or even waste their time on it.

Honestly James what do you think makes more sense. Your 1 minute hair-brained trade idea that no-one knew was coming or real trades I did do along with many others in deep liquid and levered markets that can handle "Hedge" money? We don't waste our time with that dumb ****. Sorry my friend, it's just not done that way.

Come to think of, why would you even care? Who did it 'screw'? Had you been in IVV would you have been screwed? No, you would not have even noticed. At the end of the day you were no worse off than in SPY that had less of the anomaly. Again you're crying over nothing here. You can hate the equity markets and crooks all you want, but you gotta give a reason that at least makes sense. No-one was hurt in IVV.


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## james4beach (Nov 15, 2012)

I think you need to ask yourself, what is the mechanism that makes an ETF price track the underlying NAV?

In your replies, you're telling me that no institution will bother themselves with short-term trades when an ETF price gets out of line with NAV.

If that's the case, I shudder to imagine how any of us go out into the world and buy XIU or SPY or whatever, at any point in time. If we're to believe tosser, the ETF prices are just floating around randomly disconnected from NAV, since no institution would ever bother to arbitrage them.


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