Donald Trump paid no taxes in 10 of the past 15 years, according to a sensational new report by the New York Times this week. In other words, the average Canadian probably paid more in taxes than the billionaire president of our neighbouring country. Luckily, the Canada Revenue Agency (CRA) allows us to minimize our taxes in much the same way.
Here’s how Trump squeezed his tax liability to a single digit and how you can minimize (if not eliminate) taxes as well.
Playing by the CRA rules
None of the tactics Trump used are unique or exotic. Tax rules in many countries offer several incentives, deferrals and allowances to help reduce the burden for the average household.
The CRA, for example, has clearly outlined several ways investors can reduce their liability legally. The most popular example is the Tax-Free Savings Account (TFSA) and the Registered Retirement Savings Plan (RRSP). Maximizing these tax-efficient wrappers is an essential first step for any investor. A dollar saved is as good as a dollar earned.
However, the rules also allow you to minimize taxes on investments and income beyond the tax-free accounts.
Trump paid little to no taxes for several years was by declaring a massive US$916M in a single year. According to the New York Times, this mega loss helped Trump write off 18 years’ worth of income taxes.
The CRA allows a similar maneuver for Canadian investors. If you lost money on a trade or stock earlier this year, you can claim the capital loss to offset gains in the future. Investors in Suncor, for example, could declare the 60% loss on their investment this year to offset potential gains in future years.
Own real estate
For a handful of complex reasons, real estate tends to get preferential treatment from tax authorities across the world. Trump’s real estate empire allows him to write off significant taxes and claim incredible advantages over the average taxpayer or businessman.
The CRA offers similar incentives for Canadian real estate investors. You can claim $5,000 for the purchase of a “qualifying home” under the Home Buyers’ Tax Credit scheme, claim expenses on making your home more accessible or claim a GST/HST credit for the purchase of a new home.
However, the tax incentives spill over to publicly-traded real estate investment trusts (REITs). RioCan (TSX: REI.UN), one of Canada’s largest REITs, doesn’t have to pay corporate taxes on its rental income so long as it passes a majority of its cash flow to investors. This means the tax advantages flow to REIT investors in the form of higher dividends.
At its current market price, RioCan offers a stunning 10.2% dividend yield. This dividend is tax-free if you hold RioCan units in your TFSA or RRSP. However, even if you own the units in an unregistered account, the tax you pay could be lowered by RioCan’s assessment of return on capital, capital gains and rental income.
Reach out to a tax expert to learn more about the benefits of REITs. In short, owning a REIT is like owning a small piece of a real estate empire. Plus all the tax benefits Donald Trump enjoys.
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