I still drool over the memory of my first car, a sixty-seven Mustang fastback, metallic green. Great body, smooth ride, and mechanically sound... mostly.
My first night out in the Green Machine was to a youth dance. On a mild and rainy evening in April I drove my girlfriend, her two sisters, and another young lady. It was teenage boy bliss - four cute girls, a great car, and me. As evening settled in, we started out along the Fraser Highway between Aldergrove and Langley. A veritable one-ton tin can pickled internally with giggly angst.
Recipe for Blurred Vision:
- 1 dark, rainy night
- 4 windows rolled up to keep the rain out
- 6 sweaty adolescents
- 1 supposedly minor mechanical flaw - a broken heater core/windshield defogger
- 1 first-time night driver
Place ingredients in green can and allow to breath, sing, laugh, and talk nervously.
- add fog to taste.
These were driving conditions I never want to experience again. The oncoming lights and highway lines were at best a blur. The girls were singing some Billy Joel song with their collective might. I was dumbfounded, dodging between the fuzzy oncoming lights on the left and the dark muddy drainage ditches on the right. I resisted pulling over, not wanting to look stupid, thinking to myself: "People do this, right? How do the other drivers see in this stuff?" I finally stopped, wiped down the windshield with a cloth, cracked open the windows, and turned up the (cold) fan full blast.
What might otherwise have been an easy ride was slow and painful, but we made it alive. It was a sobering lesson about how seemingly little things can bite you hard if you ignore them.
Tax Shelters - Could be another sobering lesson.
Part 4 of Year-end Tax and Investment Ideas
It's been a pretty good year for some who have invested in equity markets. High-income earners might be considering purchase of a tax shelter (i.e., limited partnership, flow-through shares, etc.) before year-end in order to receive significant tax deductions. These are generally structured so that the expenses incurred by the investment in the first few years are flowed directly to individual investors, who can deduct them against taxable income - a potentially huge tax savings. Awesome idea as long as your investment rationale doesn't get fogged by drooling over the tax savings.
Beware: "A good tax shelter that is a bad investment is really a bad tax shelter."
In other words the investment potential of the tax shelter and not just the initial tax savings should be your prime consideration when deciding whether to invest in it. Before making any investment in a tax shelter, consider the following questions:
What are the specific features and inherent risks associated with this investment?
What is the issuer's track record?
Is there a prospectus or offering memorandum?
Has the tax shelter received an Advanced Income Tax Ruling from the CRA regarding certain aspects of the investment? If so, ask to see a copy.
Is future financing required (i.e., additional future installment payment or liability for debts incurred by the partnership)?
When will the tax deductions be available to you?
Will the tax deductions trigger Alternative Minimum Tax?
How liquid is your initial investment?
How does the tax shelter investment affect your overall asset allocation strategy and your risk tolerance?
How long do you plan to hold the investment and what are the tax implications on disposition?
You should be comfortable with the answers to these questions before making the investment. Although the temptation may be high to invest in a tax shelter solely for the immediate tax benefits, ensure that there is a reasonable expectation of profit after taking the tax benefits into account.
In addition, the overall benefits of investing in a particular tax shelter should outweigh the potential benefits of other investment alternatives at that time.
Charitable Donations
In addition to RRSP contributions and investment tax shelters, making a charitable donation is another way to reduce the personal tax you pay. The final day to make contributions to a registered charity in order to claim the donation tax receipt on your 2013 income tax return is December 31, 2013. Donations above $200 can result in a tax savings equal to your marginal tax rate. A donation of $10,000 can result in tax savings of more than $4,300 for high income residents of British Columbia.
As an alternative to cash, you can also donate publicly listed securities in-kind to qualified charities without being subject to tax on the realized capital gain. You will receive a donation tax receipt equal to the fair market value of the security at the time of the donation, which can help reduce your total taxes payable.
Speak to your advisor on the investment merits of donating securities in-kind to a charity prior to year-end. If you plan to donate securities in-kind before year-end, then due to the administration involved in processing an in-kind donation, ensure that you start this process well in advance of the year-end to ensure that the in-kind donation is recorded as a 2013 donation. If you have thought about leaving a legacy but are unsure of the best way to accomplish this, speak to your advisor on the benefits of donating cash or securities in-kind to your own charitable foundation which can be facilitated through programs designed in-house for that purpose.
Mark Ryan is an advisor in Prince George with RBC Wealth Management, Dominion Securities, and can be reached at [email protected].
