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Scrap dividend tax credit, Lower interest income tax to encourage healthy saving
June 10, 2021
8:35 pm
Bud
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Government should encourage saving not reckless speculation and handouts.

The narrative that savers are below business people on the totem pole is a crock. Savers deserve equality. Their families aren't more worthy than yours. Call it out.

June 10, 2021
9:57 pm
Doug
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Bud said
Government should encourage saving not reckless speculation and handouts.

The narrative that savers are below business people on the totem pole is a crock. Savers deserve equality. Their families aren't more worthy than yours. Call it out.  

That's silly. Dividends investing = saving, not "reckless speculation" nor "handouts."

A better cost savings measure would, arguably, be to lower the very high threshold by which OAS begins to be clawed back from the current $75,000 amount to between $50-60,000. 🙂

Cheers,
Doug

June 10, 2021
11:27 pm
Loonie
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I think the TFSA gives more than enough opportunity for untaxed income to accumulation, and it increases annually.

According to many members of this forum, dividend producing stocks are already a terrific deal. They don't need any encouragement to buy in.

The gross-up on eligible dividends already puts some people's income into the clawback zone.

By the time someone in Ontario reaches the OAS clawback threshold, they have already lost all of the provincial Age Amount and most of the Federal one. The Age Amount tax credits are worth almost $1,700 maximum in cold hard cash, per senior.

The worst of it is those cursed RIFs, which can easily bump up one's income by 10-50K or more, wiping out both the Age Amount and some or all of the OAS as well as bringing one into a higher marginal bracket. The sum total loss can easily exceed the rate one would have paid in the first place if one had not bought them. People don't consider these losses when they buy in, and FIs never mention it.

June 11, 2021
5:33 am
savemoresaveoften
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Savings come in all forms and shapes, be it savings account, GIC, dividend paying stocks, blue chip stocks, precious metal, or even bitcoin.
Fixating on interest income alone is so narrowly focused and shallow.
I dont support the OAS clawback either. It is directly punishing successful savers / careers as basically tell them you are NOT eligible for OAS. This is a slap in the face as they are the one who mostly likely contribute more to the economy and pay more tax throughout their life. With our progressive tax system, any OAS pay out will be taxed accordingly anyway.
I can never support any system design that are counterintuitive.

June 11, 2021
6:02 am
Dennis
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Most dividend paying stocks are well established business and investing on these business is not "reckless speculation". Most "reckless speculation" stocks don't pay dividend.

Personally, I too prefer to scrap dividend tax credit though. To do that, it should be treated as before tax expense to avoid prevent double taxation.

June 11, 2021
6:40 am
Bill
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Savers create zero wealth, it is "business people" (Bud's term) who borrow those savings to start businesses, etc who create the wealth we all need. To say "savers deserve equality" promotes the notion that those who take risks to create wealth should receive no extra return when they succeed. If that was the case I don't see why anyone would bother creating wealth, and that wouldn't be good.

Re OAS and other benefits I'm of two minds. We want to target gov't benefits to those in need, but we also don't want to "punish" those who've lived responsibly so as not to rely on their neighbors for financial support.

Re RIFs, it's not required to have one, if you don't like having one cash it all out & take the tax hit in one year (or become a resident of a tax haven for that year!), then you can be happy.

June 11, 2021
6:56 am
Alexandre
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Me personally, I have no problem with people creating wealth, and with people just speculating on stock market, and with people who draw their income from interest on savings, and with anyone else making money the legal way.

The problem I have is with tax code not treating these people equally. An income is an income is an income.

Tax code, in my opinion, should be simplified to reflect that. All and any income should be taxed at same tax rates.

June 11, 2021
7:22 am
HermanH
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Bill said
Re OAS and other benefits I'm of two minds. We want to target gov't benefits to those in need, but we also don't want to "punish" those who've lived responsibly so as not to rely on their neighbors for financial support.

Any time an outside influence (i.e. taxation) is imposed on the system, someone is 'punished' for the benefit of others.

Should those who have lived responsibly all their lives be forced to pay anything at all for those who spent every last dime of every paycheque of their working lives and then expect others to pay for their medical and long-term care home expenses? Instead of looking merely at a single year's income, the entire lifetime earnings should probably be examined. Those who made millions and failed to save a cent should not be held in the same regard to those who did not squander riches.

June 11, 2021
7:51 am
Bud
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Bill said
Savers create zero wealth

June 11, 2021
10:19 am
Bill
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The dividend tax credit exists to avoid double taxation, i.e. credit to shareholder as tax has already been paid by the corporation. Scrapping it would result in corporations paying less tax, might not be a bad idea - ?

June 11, 2021
11:41 am
Norman1
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The dividend gross up and dividend tax credit system ensures that corporate profits, paid out as dividends, are taxed the same as if they were paid out to the owners as salary. That way, there's no tax incentive to flow profits through a corporation and out.

The profits that are never paid out and spent in the business are taxed at lower corporate rates.

It also ensures that a minimum tax is paid on profits that are paid out to shareholders that don't pay taxes, like TFSA trusts, RRSP trusts, and pension funds.

June 11, 2021
2:06 pm
AltaRed
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+1 Plus non-profits, churches et al. Seems like most people do not understand how dividends and the DTC work.

June 11, 2021
2:53 pm
savemoresaveoften
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Norman1 said
The dividend gross up and dividend tax credit system ensures that corporate profits, paid out as dividends, are taxed the same as if they were paid out to the owners as salary. That way, there's no tax incentive to flow profits through a corporation and out.

The profits that are never paid out and spent in the business are taxed at lower corporate rates.

It also ensures that a minimum tax is paid on profits that are paid out to shareholders that don't pay taxes, like TFSA trusts, RRSP trusts, and pension funds.  

Thanks Norman. A lot of people just thought tax law is so generous on dividend, when in fact that is simply not true.

AltaRed said
+1 Plus non-profits, churches et al. Seems like most people do not understand how dividends and the DTC work.  

esp the person who started the thread and a known bank hater 🙂

June 11, 2021
4:47 pm
AltaRed
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savemoresaveoften said
esp the person who started the thread and a known bank hater 🙂  

We seem to have more than our fair share of that around here along with sensationalist and slanderous thread names. Fortunately moderation does edit some of the worst ones.

June 11, 2021
4:58 pm
Bud
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If DTC is so necessary why was it reduced. I paid less tax on my dividends because of the gross credit. Anyone who says that's not the case is mish mashing the subject to justify. Like some how cause they're shareholders they deserve special treatment. That's their tactic come off like experts to justify. Like Musk and Zuckerberg shouldn't pay more tax cause it will penalize them. They've talked about getting rid of it.

"On October 24, 2017, in conjunction with their Fall Economic Statement, the Department of Finance tabled a Notice of Ways and Means Motion to reduce the gross-up rate for non-eligible dividends to 16% in 2018, and 15% thereafter, with the non-eligible dividend tax credit revised to 8/11ths of the gross-up for 2018 and ...May 29, 2021"

June 11, 2021
5:13 pm
AltaRed
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You still don't understand how dividends work, especially for 'eligible' dividends generated by our large corporations. [As an aside, I don't know why you are now referencing non-eligible dividends which are a different animal and mixing it with US tax law which is different than Canadian tax law].

Eligible dividends paid by Canadian corporations to us are paid out of after tax income (as compared to interest income out of before tax income). It would be double taxation for shareholders to pay those 'corporate taxes' in addition to our own personal income tax rates, so in fairness, shareholders basically get the dividends they receive 'grossed up' to a before tax amount to put that income on a (somewhat) level playing field before we then pay income tax on 'before tax' values of dividend income.

The percentage amount of the 'gross up' to us is an approximation of an average corporate tax rate paid to Ottawa. When the government reduces corporate tax rates as they do from time to time, that means the amount of the 'gross up' must also reduce in parallel. It is not at all a difficult concept....!

I would suggest you educate yourself on income tax systems before forming (erroneous) conclusions.

June 11, 2021
5:41 pm
Bud
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Corporations should pay double tax. Why would anyone want to pay more tax than someone else that's stupid.

June 11, 2021
10:14 pm
Loonie
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Bill said
Savers create zero wealth, it is "business people" (Bud's term) who borrow those savings to start businesses, etc who create the wealth we all need. To say "savers deserve equality" promotes the notion that those who take risks to create wealth should receive no extra return when they succeed. If that was the case I don't see why anyone would bother creating wealth, and that wouldn't be good.

Re OAS and other benefits I'm of two minds. We want to target gov't benefits to those in need, but we also don't want to "punish" those who've lived responsibly so as not to rely on their neighbors for financial support.

Re RIFs, it's not required to have one, if you don't like having one cash it all out & take the tax hit in one year (or become a resident of a tax haven for that year!), then you can be happy.  

Let's not glamorize the role of entrepreneurs. Statistically, a very large proportion of small businesses fail, even without pandemics, for a variety of reasons (my recollection is that it's over half within two years fail but haven't confirmed this). Many of them have ideas that would never work, don't know their markets, and, frankly, aren't very bright. It's fair to assume that, like others who experience financial loss, that some end up depending on the rest of us, via government programmes. The thing about "risk" is that not everyone is rewarded; some fail, even repeatedly. For every multimillionaire, there are others who have failed miserably and lost their capital, even their houses, and contribute little or nothing to the economy.

It raises interesting questions about who is really the more '"responsible" citizen - the one who makes a good, well-informed decision to start a business and has educated themselves to have the skills to be able to carry it out with reasonable hope of success; the individual who has what he or she thinks is a great idea and proceeds to start a business which will fail because they don't really know what they are doing; or the nurse who risks their life but can't afford financial risk so saves their money and buys GICs? There are a million examples.

As for RIFs, the point is that we were sold a bill of goods in buying RSPs in the first place without an informed discussion about how they would in fact be taxed at the end of the day and the possible tax innovations that would further diminish their value.

For those who might be tempted by Bill's proposal, DON'T DO IT! (I hope it was a facetious suggestion, just to try to get my goat.) No responsible financial planner I know of would suggest this because, in almost all cases, it will be a recipe for paying the most possible tax.

If you want to get rid of your RIFs and RSPs, make strategic withdrawals over several years to minimize tax. That's what I'm doing. You may need professional help to figure this out, as it's complicated and depends on your age, current and projected income, and a number of other factors. For most people, it can be accomplished over a period of five to ten years. This is what I'm doing; I only wish I'd started earlier.

Added: It is false to say that savers don't create wealth. To the extent that wealth is "created", savers are just as critical to this as anyone else who works for or operates the businesses that get all the credit. The businesses would create zero product or wealth without their employees.

June 12, 2021
10:21 am
Norman1
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Savers can create wealth through what they do for a living. But, they don't create much by parking money for a fixed period of time, for a set amount of interest, with both the principal and interest guaranteed by a deposit insurer.

Don't need to start one's own business to create wealth. There are plenty of successful established businesses one can buy a part ownership in.

The statements made at the start of this thread are those of ignorance.

Ignorance of the fact that the dividend tax credit is just flow through of the corporate income taxes already paid by the corporation on the income the dividend is from.

Ignorance of the low value of money in the form of deposits.

During the early days of the banking crises in 2008, CIBC was able to, in one business day, sell $1.5 billion of common shares to retail investors. Another $1.5 billion to institutional investors. Not obligation to return the principal. No guarantee on the dividends.

Want principal back in three years with guaranteed interest rate? We also have to pay for the insurance for the principal and interest? Don't call us. We'll call you!

June 12, 2021
1:21 pm
Bill
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The fact many entrepreneurs fail is an irrelevancy. Those that succeed create the wealth is the point.

"Responsible" citizen is also off the point of who creates wealth.

Emplyees are "critical" again off point of who creates wealth, i.e. only after the entrepreneur has set up the whole thing do employees get to play their role. Car plant leaves for sunnier climes, employees unemployed, that's why they get so mad when company closes up, now they have to find a business others have set up to work for or become a successful entrepreneur themselves.

Re RIFs, no bill of goods, no one is obligated to offer "informed discussion" to other adults with money to spend. I figured out what I was getting into, thus so can others, it's not appropriate to blame other adults even a bit. RIFs work quite well for many people, if not you that's on you alone.

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