Canadian Personal Finance Blog

I have been cleaning up my directories and looking over the 900+ postings I have been doing over these past few years and I came across this gem, I Should Divorce My Wife? which points out how strangely set up the tax system is. The concept is purely a “what if” scenario.

I should divorce my wife?

I read that one on the Alan Baggett news site, and scratched my head but it is actually how the tax system is set up currently. If I divorce my wife and pay her Alimony (not child support, remember that case a while back, where that is taxed in the payers hands) I can effectively split my income.

I remember having this argument that in the Government’s eyes the following scenario would be ideal:

1. Divorce my wife, and pay her half my salary as Alimony (thus sharing my income)
2. Have my children live with me, so I might be able to claim the Child Tax Credit and Ontario Tax Credit
3. Rent my wife an apartment in the basement of my house (with it’s own entrance).
4. Have my wife take care of the kids (as daycare) and write off the money I pay her on my income as well (and she does it in my home, so I write that off too).

OK, ok, this is a ridiculous scenario (and I’m sure some might even claim illegal, although I’d love to see that taken to court), but this is how messed up {sic} the entire Canadian Tax System is! I checked this with Quicktax and it was quite happy to show me the obscene amount of tax I’d save.

Alan’s tax bible is an interesting read, as are his stories (they are a little “he said, she said” which at times I am not fond of), but still interesting to read how some people are persecuted by the Tax system, while others get off “scott free”.

Please let me repeat, I do not condone the above tax sharing concept (but if you get away with it drop me a line, I’d be curious to hear).

I got a book out of the Ottawa Public Library a week or two ago, and I was very happy with it’s content. The book in question is: Smoke & Mirrors: Financial Myths that Will Ruin Your Retirement Dreams by David Trahair (CA).

The books subtitle is “Financial Myths That will Ruin Your Retirement Dreams”, and I was very impressed by the thoroughness and the passion of the arguments that Mr. Trahair puts in this book (and helpful CD with some useful spreadsheets to do calculations with). I discussed this book with other N.C.F.B.A. members and those that had read it were also impressed by the message put forward by Mr. Trahair.

Mr. Trahair’s book attempts to debunk the myths that are being pushed by the Financial Institutions and professionals that make money on our retirement planning.

The five major myths he addresses are:

1. 1. 1. 1. If you have a Million Dollars you can retire (or write a hit song ).
         2. RRSPs are the holy grail of retirement
         3. Don’t worry about your investments, you will be fine in the long run
         4. We have met the enemy and he is the Tax Collector
         5. Secure your financial future: buy life insurance

His arguments in these areas are quite compelling and I think I mostly agree with his questions about whether you can trust an “expert” that is making money from their own advice.

The rest of this good book outlines how to “Fight Back” and he outlines some excellent financial models and debunks the “Lease your Car” model and a few other interesting areas.

His major point of “Get out of Debt FIRST” is an excellent point and for that alone I think Mr. Trahair is on the right track with his ideas.

Overall Review

Excellent book, while I don’t necessarily agree with all of Mr. Trahair’s statements, I feel his arguments are very compeling to me, and he does not waiver on his message of “Pay off Your Debt FIRST!!!!”, and for that I am impressed.
I would highly recommend reading this book (I took it out of the Ottawa Public Library).

Carnivals

This weeks carnivals I have a post in:

Carnival of Debt Reduction - Gazelle Intense Edition has my Worst Financial Advice Ever Given post, as it’s lead post!

Bank of Canada Stays Pat

Experts, shmexperts! All the major sites were calling for a cut to 2.75% on the overnight rate, well the Bank of Canada saw some sense and held their ground and did not cut the rates this time. I think this is a good idea given the Inflation Boogie Man is out there and I suspect he is going to come and stay for a while too!

The comment from the Bank of Canada States:

If current levels of energy prices persist, total CPI inflation will rise above 3 per cent later this year. However, with the Canadian economy operating in excess supply, core inflation is expected to remain below 2 per cent through 2009. Both total and core inflation should converge on 2 per cent in 2010 as the economy returns to balance.

Against this backdrop, the Bank now judges that the current stance of monetary policy is appropriately accommodative to bring aggregate demand and supply into balance and to achieve the 2 per cent inflation target. There continue to be important downside and upside risks to inflation in Canada, which the Bank will monitor closely.

Mortgage That’s the Ticket!

In my humble opinion, for me, I should be paying down my mortgage and debt load, and not concentrating on my retirement.

Until about 1 year ago, I had the potential to get a very good pension from my employer (the pension was capped and a new pension system put in place, although I still have some equity built up in my now capped pension), so I was actually investing heavily in a Spousal RRSP to ensure an income splitting model when I retire.

Currently I save about 8% of my income in RRSP or retirement funds (without including the new Pension that I am currently part of, that I am not sure what value it has yet).

Saving 8% annually approaches what I should be saving for my retirement as a minimum (last I heard most “experts” said 10% is a minimum you should save for your retirement). I suspect I am ok for retirement, whatever that actually means to me (given I don’t think I can retire for a long time, due to family commitments).

Wait a Minute, you said….

What do I mean by the title of this post then? I actually am on the “RRSP That’s the Ticket” side of the question of whether to invest in your retirement or pay off your debts? My answer is I think I made a mistake, and should have been much more aggressively paying off my debt load (which is not as low as it should be currently).

I make this statement as my opinion of how my debt load is affecting me. Let me be clear, carrying debt is making me sick, it keeps me up at night, it distracts me and worries me every day since I went into debt many years ago. I am confident this worry has affected my health directly, worrying about this debt and the scenarios that come from still carrying this debt, this late in my working career.

What should I be doing now is the next interesting question? I think I need to sit down with my wife and figure out how to change all of this, but we were going to do that anyhow given it is almost the end of this home finance quarter.

Netfile Tax Reprieve

Freedom from having to pay taxes, for 5 more days, if you Netfile. This extension only applies if you are going to use Netfile to submit your return, and it only applies if you owe money. As was pointed out by someone, if the government owes you money, they don’t really care WHEN you submit your taxes (but you better be sure you are getting a refund before you procrastinate like that).

Shrinking Economy

Stats Canada reported that economic activity shrunk by 0.2% in February, and this was caused by shrinking manufacturing and wholesale trade, what caused this? Don’t know but it’s not a good indicator that the Canadian economy is going to “weather the U.S. downturn well” as has been said by a few economists.  One month does not a downturn make, but it’s something to remember.

Interest Drops

This month is a new month, and for me, it means a complete month with lower interest rates on my Mortgage and my line of credit.  TD’s prime lending rate is 4.75% right now and if you are curious what rates you can get on a Line of Credit, read Michael James’ essay on that topic, especially the comments, which are very telling as well.  I will be taking this opportunity to make the same payments I always make and thus taking more principal off these debt devices.

Gas Prices at $1.20 per Liter

That is where they have been in the Ottawa area, and driving has been much more expensive. I am paying about $10 more a week for my car to drive (which is a 50% gain in what I was spending), just in gas costs also (not including car wear and tear and insurance). I am attempting to offset that by NOT buying coffee at work (yes I am attempting that again). So far this week, I have only bought 1 coffee, which means I have not bought about 8, so that is quite good (and it does add up to my goal of $10.00 or so). I will keep my readers informed of my progress.

Ottawa High Tech

Alcatel (ALA) announced some hefty bad numbers yesterday, with a 5th consecutive losing quarter.  This combined with a warning on sales figures and fresh lay off talk, makes the Ottawa Tech sector a little more jittery this month. Nortel (NT) announces Friday morning, and there are concerns of similar statements from the former High Tech juggernaut.

What does this have to do with me? I live in this world, and a jittery world it is right now.