Investing

Living off investments (and reducing taxes)

  • Last Updated:
  • Sep 13th, 2017 11:26 am
[OP]
Deal Addict
Apr 22, 2014
2609 posts
364 upvotes
Oshawa, ON

Living off investments (and reducing taxes)

Let's say you have a sufficient capital base which you are able to invest and produce returns sufficient to pay your cost of living as well as grow your capital. So as not to muddy what the investment strategy lets suppose I'm particularly adept at earning 1% a year on a capital base of $60,000,000 (like I won the lotto max or something). The return is a mix of interest, dividends, capital gains and premiums from selling options (both puts and calls). All non-registered account.
Lets also say I have a few people in my employ to assist in my endeavor, some of home are immediate family, AND some of my capital base is comprised of money from friends and family who love and trust me with their hard earned money. I pay them a portion of the returns as well, when requested.
What is the best way to structure this to minimize the tax burden? I think that if I just day-trade/invest for a living the gains are not treated as capital but as income and thus subject to higher tax? What if I instead just pay myself a modest salary? I have no idea but I know it's a looming problem I may (happily) need to solve in the next decade or so.
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35 replies
Member
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Oct 19, 2016
345 posts
108 upvotes
Toronto
If one has that much capital base($60m), they should be talking to big Accountants and Accounting firms like Delloitte,KPMG, PWC, EY, . They will charge a lot of money but it will be worth it.

Even the richest RFD user probably has less than $5m my guess.
Member
Oct 27, 2014
343 posts
241 upvotes
Toronto, ON
A good dividend equity portfolio should pay about 3 to 4% in dividends every year, with preferable tax rate (https://beta.theglobeandmail.com/globe- ... ndmail.com&).
So even if you only have 5 million, that's 150k to 200k a year income in dividends. I don't see anyone needing more than that unless you are living an ultra luxury lifestyle. I'd personally retire with 3 million in savings.
[OP]
Deal Addict
Apr 22, 2014
2609 posts
364 upvotes
Oshawa, ON
mrtrump wrote:
Sep 8th, 2017 11:55 am
If one has that much capital base($60m), they should be talking to big Accountants and Accounting firms like Delloitte,KPMG, PWC, EY, . They will charge a lot of money but it will be worth it.

Even the richest RFD user probably has less than $5m my guess.
muppetslayer wrote:
Sep 8th, 2017 12:02 pm
A good dividend equity portfolio should pay about 3 to 4% in dividends every year, with preferable tax rate (https://beta.theglobeandmail.com/globe- ... ndmail.com&).
So even if you only have 5 million, that's 150k to 200k a year income in dividends. I don't see anyone needing more than that unless you are living an ultra luxury lifestyle. I'd personally retire with 3 million in savings.
The numbers are made up to reduce the relevance of how the money is made. The question is: what to do?
The same question also applies to lets say I have a capital base of $5000 and I can make a 1200000% return. What to do?

To make it more abstract, lets say I can invest/day trade my way to being financially independent, never mind how or how much. What to do? How do I minimize my tax burden?
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[OP]
Deal Addict
Apr 22, 2014
2609 posts
364 upvotes
Oshawa, ON
mrtrump wrote:
Sep 8th, 2017 11:55 am
If one has that much capital base($60m), they should be talking to big Accountants and Accounting firms like Delloitte,KPMG, PWC, EY, . They will charge a lot of money but it will be worth it.

Even the richest RFD user probably has less than $5m my guess.
muppetslayer wrote:
Sep 8th, 2017 12:02 pm
A good dividend equity portfolio should pay about 3 to 4% in dividends every year, with preferable tax rate (https://beta.theglobeandmail.com/globe- ... ndmail.com&).
So even if you only have 5 million, that's 150k to 200k a year income in dividends. I don't see anyone needing more than that unless you are living an ultra luxury lifestyle. I'd personally retire with 3 million in savings.
The numbers are made up to reduce the relevance of how the money is made. The question is: what to do?
The same question also applies to lets say I have a capital base of $5000 and I can make a 1200000% return. What to do?

To make it more abstract, lets say I can invest/day trade my way to being financially independent, never mind how or how much. What to do? How do I minimize my tax burden?
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[OP]
Deal Addict
Apr 22, 2014
2609 posts
364 upvotes
Oshawa, ON
The numbers are irrelevant.

If I'm able to invest/day trade as a full time job, and also my wife and son are helping me in this work, and also I have some parents and friends money in the account, what do I do?
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Sr. Member
Jan 20, 2016
994 posts
284 upvotes
Burlington, ON
eldeejay wrote:
Sep 8th, 2017 12:20 pm
The numbers are irrelevant.
Wrong.

Tax situation HEAVILY depends on "numbers". As well as strategy. 1M capital/50k yearly income and 50M/2M yearly is VERY different in term of taxation (+GIS/OAS etc factors) and methods to reduce them.
And as we could see before, with xx millions you could get some "specific" services from tax "professionals" and pay less taxes in results...
Member
User avatar
Oct 19, 2016
345 posts
108 upvotes
Toronto
The numbers are absolutely relevant as income tax laws are progressive. The more you make, the more you pay in general.

if your income is of an average income, as far as I know there is no legal way to minimize your taxes. But Im not an accountant.

eldeejay wrote:
Sep 8th, 2017 12:20 pm
The numbers are irrelevant.
Last edited by mrtrump on Sep 8th, 2017 12:29 pm, edited 1 time in total.
Deal Addict
Nov 9, 2013
1792 posts
576 upvotes
Edmonton, AB
Probably a dividend strategy would be most tax efficient, especially if you are using a holding corporation. I believe cap gains and dividends are taxed at higher rates within a corporation than they are personally, but you can flow these through to yourself and pay your regular tax rate on them, up to a certain level.

Ultimately though the best advice would be gained through a financial planer / tax advisor.
[OP]
Deal Addict
Apr 22, 2014
2609 posts
364 upvotes
Oshawa, ON
asa1973 wrote:
Sep 8th, 2017 12:26 pm
Wrong.

Tax situation HEAVILY depends on "numbers". As well as strategy. 1M capital/50k yearly income and 50M/2M yearly is VERY different in term of taxation (+GIS/OAS etc factors) and methods to reduce them.
And as we could see before, with xx millions you could get some "specific" services from tax "professionals" and pay less taxes in results...
I can qualify as exempt market dealer with a $50,000 deposit. I can basically start a hedge fund (I think) that employs only myself and family and only takes money from friends and family. I'd like to be set up properly before starting as opposed to having to get bent over a few times by the CRA before finally figuring it all out.
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Member
User avatar
Oct 19, 2016
345 posts
108 upvotes
Toronto
What is the tax benefits of an exempt market dealer? Does it mean you wont be paying taxes on the income personally ??
If the dealers doesnt pay, surely the investors will have to pay the income tax... otherwise everyone would be doing this.





eldeejay wrote:
Sep 8th, 2017 12:33 pm
I can qualify as exempt market dealer with a $50,000 deposit. I can basically start a hedge fund (I think) that employs only myself and family and only takes money from friends and family. I'd like to be set up properly before starting as opposed to having to get bent over a few times by the CRA before finally figuring it all out.
[OP]
Deal Addict
Apr 22, 2014
2609 posts
364 upvotes
Oshawa, ON
treva84 wrote:
Sep 8th, 2017 12:30 pm
Probably a dividend strategy would be most tax efficient, especially if you are using a holding corporation. I believe cap gains and dividends are taxed at higher rates within a corporation than they are personally, but you can flow these through to yourself and pay your regular tax rate on them, up to a certain level.

Ultimately though the best advice would be gained through a financial planer / tax advisor.
Most financial planners say that I should buy the mutual fund they are selling or just give them my money so I don't have to worry my little head about it... derp a derp.
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Deal Addict
Nov 9, 2013
1792 posts
576 upvotes
Edmonton, AB
eldeejay wrote:
Sep 8th, 2017 1:01 pm
Most financial planners say that I should buy the mutual fund they are selling or just give them my money so I don't have to worry my little head about it... derp a derp.
I would skip the typical bank mutual fund advisors and look for a specialist tax planning or wealth management firm. You could ask your accountant for specific recommendations as well.
Jr. Member
Nov 6, 2015
105 posts
179 upvotes
Oakville
I trade futures for a living. Here's the setup I use:

All trading is done within a CCPC with myself and my wife as shareholders. The corporation pays ~15.5% tax on net income up to $500K

This allows us to pay out up to ~66K/yr as dividends (as of 2017) without paying any personal income taxes. If additional funds are required, I pay out a salary/bonus. Remaining profits are retained in the corporation.

Of course, I'll probably have to make some changes once Morneau's changes come into play.

Honestly, it all depends on the numbers. Once you're in the big leagues ($10M+ AUM and income above 1M), it makes way more sense IMO to incorporate offshore like most funds do. You'll need specialists to set it up for you, but it can be done.
Member
Jul 27, 2017
242 posts
58 upvotes
GTA
OP, take the simple zero tax approach with any amount of money that you have living in Canada.

Depends on so many variables, but lets take 'one million dollars' x1 to x60

One million dollars in a zero in a zero interest saving account taking $1000 out of the account every single week, then the one-million would last approx 20 years. Use the multiplier x1 to x60 million

One million in a 12mth GIC is currently paying an annual 2.4%, interest paid monthly.$24,000 at max tax rate of (use) 50% worse case,you net $12,000

With 60-million for the average person winning the lottery, blowing $30 million, then with $30 million left (in a zero interest savings account) to do whatever with, it would probably out live you
My crystal ball is broken

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