Canadian Personal Finance Blog

We Canadians are shrewd investors, if not at times overly cautious (as a general rule). Our investment in the outside world continues to expand, even with the dollar strengthening due to our richness of resources. Stats Canada says that in the past 8 years our holdings in foreign securities has doubled (2x), which is very interesting (Year end 2005).

Where are we investing? Are we just looking below the 49th parallel? Nope, not just there, but all over the world (in fact not as much in the U.S. as I thought). This is a good thing, since I suspect the American economy’s relative strength in the world is weakening (slowly). The Far East and Pacific Rim are areas of growth in Canadian investment (moneys spent in that area, not growth of the investment), so we Canadians are looking far and wide for investment opportunities.

Well, if we can invest so much, does that mean we are making that much more money? The median income for a Canadian family (of two or more people) rose about 1.4% to about $56,000 which is not bad really. The problem is the gap between the “have” and “have not” families and the fact that it is widening significantly.

The gap between the top and bottom quintiles started at $83,800 in 1980, and fluctuated between $79,500 and $84,500 until 1996. By 2005, the gap had reached $105,400.

(…)

Average after-tax income in 2005 was $128,200 for the 20% of families with the highest incomes, compared with $22,800 for the 20% with the lowest.

That is amazing, over $100,000 now separates these fifths of the population? I think I have talked about this gap before, but this data really does bring it home, that there is a world of difference between those who “have” and those who “do not” in Canada.

While that one is concerning here is another one to ruminate over:

The 20% of families and unattached individuals who took home the highest amount of after-tax income in 2005 collectively paid almost 60% of all personal income taxes that year, up from 50% in 1980.

Paying their fair share, is what comes to mind. Here is a good table to end with:

“The average weekly earnings of payroll employees (seasonally adjusted) increased $1.06 (+0.1%) from a month earlier to $764.12 in February.”, pronounced Stats Canada, and that is a good thing. Given that employment is also increasing in Canada as well, that is a good thing!

The number they quote is a little weird $764 a month is only about $9,000 per year, but I think it is a composite of ALL incomes, so it includes part time and high school students and such. Have a look at this table it is fascinating to read (and reprinted without permission, so check out the Stats Canada version as well):

Cool stuff eh?

If you keep talking about allowing for family income splitting, you had better deliver or you’ll have a backlash coming at you for the next election. My guess is they will propose it in a budget they assume will NEVER get passed, and then use it as a plank in their election platform.Jim Flaherty keeps making statements like:

“Joint filing is one of the items that is on the table,” Flaherty told the Canadian Press in an interview from Rome. He was in Europe for a meeting of the G-7 finance ministers.

Which table we talkin‘ about here Mr. Finance Minister? Table Hockey table? Pool table? Dinner table? All I can say is that if it’s on the table, it better not get knocked off and forgotten about, or I will be MIGHTY peeved.

So yesterday we saw that if Bob creates a monolithic income tower (i.e. all income comes through him) for his retirement, he could pay a lot of taxes.

If Bob takes advantage of the “income sharing” which is possible with the Canadian Spousal RRSP, his taxes could drop significantly:

• His pension income remains taxed in his hands there is really no way to hide that income, so that stays where it is.
• If previously he had put his RRSP money in a spousal RRSP that income is now taxed in his wife’s hands (and at her lower tax rate).
• Given Bob’s income is lower, he most likely gets to keep his old age security (or at least more of it than in the single income model) and is more likely to be able to receive a property tax rebate and a GST rebate as well.

As long as you invest your RRSP money wisely, there is no reason to get taxed as heavily as you did while you were working (remember, the Government hates single income families ).

Are there any other benefits of a spousal RRSP? Stay tuned