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Weekend Reading – Feb 22, 2008

Time to share some great articles that I found over the week.

  • John Chow reports how to efficiently setup a corporation to reduce income taxes.  The basic premise being to keep all the income within the corp (taxed @ 17% for < $400k) and make all withdrawals as dividend payments to the shareholders.  Providing that the private corporation dividend income is your sole source of income, shareholders can make up to around $30k tax free (depending on province).  Remember that the gross up for a private corp is 25% instead of 45% for public corporations.
  • Canadian Capitalist has the perfect article for the current RRSP season (deadline is Feb 29, 2008) called "Tips for your RRSP Contribution".  My favorite tip is "Park your contribution in a money market fund".  This will allow you to take advantage of the contribution tax break, but give you some time (and a little growth) while deciding how to invest the money.  
  • I've written about index funds vs ETF's before, more specifically "When to switch to ETF's".  I came to the conclusion that it's best to stick with cheap index mutual funds when starting out, but switching to ETF's when the balance gets a bit larger (around $25k).  Quest for Four Pillars has written a similar article which agrees with my conclusion but includes more details and calculations.
  • Moolanomy has a creative article the ABC of Wealth Building.  The game was for readers to post a financial tip for every letter on the Alphabet.  Check out the article for the tip that I submitted!
  • Thicken My Wallet wrote a great article "5 Investment Products that I Avoid".  Included in the article includes PPN's, segregated funds, wrap funds, time shares and shady tax shelters.

That should keep you busy for a while!  See you Monday!

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9 Comments

  1. Four Pillars on February 22, 2008 at 8:26 am

    Thanks for the link!

    I actually didn’t like that post very much so I ended up writing another one (hopefully the last one on that topic).

    Mike

  2. The Financial Blogger on February 22, 2008 at 8:31 am

    Thx for the link to the Carnival :-D

  3. squawkfox on February 22, 2008 at 10:48 am

    I’ll be reading the “when to switch to ETFs” articles for sure. I am currently in index funds and have some investments over at PH&N. Given the news yesterday (RBC Buys PH&N) I’m feeling the need to really watch fees.

  4. Pinyo @ Moolanomy on February 22, 2008 at 10:55 am

    Hey, thank you for sharing my article and call it creative.

    As for ETF, I think it depends if the account is taxable or not. I swear I’ll never buy another mutual fund in my taxable account. Just one hit with capital gains distribution/dividend distribution will make ETFs worthwhile (even with the trade commissions — assuming you only buy once or twice a year).

  5. Canadian Capitalist on February 22, 2008 at 11:43 am

    Thanks for the link FT. When I do get better, I’ll get around to doing a blog roundup myself. It seems like I’ve been sick more often than not in 2008. Take care!

  6. ThickenMyWallet on February 22, 2008 at 2:20 pm

    Thanks for the mention.

  7. 45free.com on February 22, 2008 at 3:01 pm

    I would suggest that anyone interested in implementing any of John Chow’s tax planning strategies seriously talk to a tax pro before doing so. For instance, except in certain circumstances, a loan to a shareholder of a CCPC needs to be paid back by the end of the fiscal year following the year the loan was made. Delaying payment as some serious and punitive tax consequences. Some of the other strategies need to be done properly in order to be tax efficient.

  8. Dividendgrowth on February 22, 2008 at 3:52 pm

    I also think that next to his tax article John Chow should put a lable like “do not attempt this at home” ;-)

  9. Jeff on February 22, 2008 at 5:24 pm

    I completely agree with 45free.com. Consult an accountant before trying this at home. The $400k small business dedection only applies to active business income. Dividends received from investments would be classified as aggregate investment income, which is taxed at the full corporate rate (~34% in BC where John Chow lives).

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