Monday, December 24, 2007

Infiniti Point: To Tax Shelter, or Not to Tax Shelter?

Wikipedia: Tax Shelter
Merriam Webster: Tax Shelter

Always think of any and all tax shelters as a temporary boost in capital - or a temporary loan from the government. It matter not about the strength of the program, the political backing, or the different laws or exemptions that it uses - but what you do with the money in the time between receiving the return, and having to pay it back.

That's right - the proper usage for a tax shelter is simply to attain capital to invest in something that generates a higher rate of return than the penalties attached to using said tax shelter. Done properly you will come out with a significant gain. You can't play a rich man's game with a poor man's mindset. Stop thinking about the structures as a point of "winning vs. losing" against the CRA. They will always have deeper pockets than you.

In using the term "lose" - that would be in the case if you participated in a tax shelter, then spent the money on liabilities. The only way to truly come out ahead - and "win" is to make the money grow. Whether it's in real estate, the foreign exchange market, or elsewhere - just plant the seeds to win the game.

When Infiniti Point Strategies selects a tax shelter - it's for the structure of the shelter to be strong enough to meet the following criteria:

1) To be strong enough to be defensible in a court of law - up to supreme court. - This allows for the longest amount of time before the court cases end, and in turn generates the most amount of growth for the clients' investment choices.

2) To support real charities with real causes - in our own backyard. Helping Canadian charities is our primary philantrophic goal when choosing to support it with Canadian Tax Dollars. The rear view mirror test in the case where the charity could exist and continue to do good works regardless of the tax shelter associated with it is an excellent test to put to a tax shelter program.

For those of you who haven't invested yet, there's no better time to start than the present.

If you're still not sure about the temporary benefits of a tax shelter, check out these links sent to me by an ex-co-worker of mine.

http://www.metronews.ca/story.aspx?id=98596
http://www.nationalpost.com/story.html?id=01a7a395-5b33-4925-9453-27acacf8a7cd&k=51696
http://www.thestar.com/News/Canada/article/287682
http://community.intuit.ca/discussion/index.php?showtopic=26826

Following up on the CRA’s intentions, there’s still a way to participate in tax shelters and make financial gains regardless of how the courts turn out.

Worst case scenario.
Let’s assume that CRA charges us 9% per annum (it’s between 8 and 9) as interest, and disallows the claims for 100% of the donation, Cash and otherwise.

So here’s an example of $2000.
$2000 1:5 Ratio = $12000 total receipts x .437 = $5244

CRA has 3 year statute of limitations to challenge shelter. Assume they wait until the last minute to gather highest interest.
Let’s also assume that your investment is growing at a 30% rate per annum (worst historical growth for one of the opportunities that I show people.)
The shortest court case on Tax Shelters was about 8 years – I’ll assume 5



Even after the capital gains of the investment are taken in account – you’re still at a net positive position when compared to the interest requested from the CRA. In the case where you’ve already spent the money – you can still set aside the same amount for a shorter period of time (3-5 years as opposed to 8) and still make a profit, even from borrowed money.

2 comments:

Brodie said...

I would add that another major consideration in taking advantage of this rapidly closing loopholes is that if you do take advantage of this short term capital gain, it is very likely that you will be audited.

Make sure that you are willing to accept a government audit as part of the package. Keep in mind also that they will probably not be nice about it.

-Brodie

Earl Flormata said...

Thanks for the comment Brodie.

Oh yes, it's not so much likely, as pretty damn certain you will be audited. Remember, if you play the game, you must be prepared to face the consequences.

I didn't say it'd be cakewalk :).

Making money is easy. Keeping it is the hard part! Just make sure you either keep good track of your financials, or have some really good folks helping you out in that regard. And PLEASE just PLEASE don't go blow all of your temporary tax savings on a depreciating piece of property.

No Boats or TV's ok? :P I don't care how sexy the deal is on the item.