BIG LITTLE LIES OF SIMPLE TAX (FLAT) RATE

BIG LITTLE LIES OF SIMPLE (FLAT) TAX RATE

(These thoughts are purely the blunt, no nonsense personal opinions of the author about financial fairness and discrimination and are not intended to provide personal or financial advice.)

This blog post was prompted by a right wing think tank article that once again promotes a flat tax and big little lies that it is already progressive and should replace the progressive tax system.  It was submitted to a local newspaper in shortened format, but was not published.

The article ‘Many misconceptions surround single tax rate’ is reprinted in its entirety at the end of this post along with reader comments.

EVALUATION OF SIMPLE (FLAT) TAX

This right wing author says he is the originator of the simple tax.  In fact, he has changed the name of the flat rate to the simple tax as per explanation given in article as reprinted at the end of this post.  The simple tax of 10% was adopted by the Alberta Conservative Government in 2001.  

While it is true the personal exemption rate was increased during implementation of the simple tax, during their forty year Alberta reign the Conservatives failed to raise the minimum wage to meaningful levels.  (Reality check:  The wealthy also get to use the personal exemption rate.)  One of the best big little lies or gaslighting of this author occurs when he fails to tell the truth that during the implementation of this simple tax the tax rate for lower income persons was changed from 8% to 10%.  There was no Alberta Advantage for lower income earners as a result of the tax rate being increased at the same time personal exemption rate was increased.

He once again spews lies on single tax being progressive.  He says tax paid by the wealthy are a gift to those who pay little or not tax.  Oh, puh-leese.

He states low income earners pay no tax, but fails to mention wealthy never pay their fair share.  He fails to mention the many tax federal and provincial tax loopholes and benefits which filter down to the wealthiest taxpayers.

The wealthy, for example, put their Old Age Security (OAS – a poverty reduction pillar that is only clawed back on top two percent) into TFSAs that are not declared as income.  Forty per cent of Canadians have net worths over $750,000.

The poor pay plenty by suffering financial and mental stresses while trying to pay for basic human necessities on provincial minimum wages which remained static for many years.  Low income earners cannot take advantage of tax loopholes and benefits because they do not have the income to do so.

CONCLUSION

Instead of ‘Conservative gaslighting pants on fire’ half truths, he needs to speak full truths on tax loopholes, benefits and minimum wages.  Progressive versus simple tax and ‘taxes explained in beer’ provides further discussion on fallacies of the simple tax for low income earners (tax-system-explained-in-beer-analogy). (End of post).

Reprint of simple tax article is given below.

‘MANY MISCONCEPTIONS SURROUND SINGLE TAX RATE’, Mark Milke, May 12, 2018 (https://www.pressreader.com/canada/calgary-herald/20180512/281702615355933)

Alberta’s cancelled single tax rate is in the news again after the United Conservative Party passed a policy resolution wanting it back.

 

That was followed by Twitter wars, interviews and commentaries about that tax, much of it uninformed or making obvious points.

 

I know something about the single rate tax system. I wrote about it in a 1998 submission to the Alberta Tax Review Committee, which recommended it be adopted, which it was in 2001.  I favour its return one day, but when spending is controlled and the budget is balanced.

 

Class warfare warriors have long mischaracterized Alberta’s single rate tax, so let’s clear up some misconceptions.

Let’s start with why it is called a single tax and not a flat tax. Because a true flat tax system would mean that no basic exemption exists — that everyone pays the same proportion of tax relative to income. That would be a bad idea. But that was never Alberta’s tax system. It is also why the political and media myth that the single tax was not progressive is nonsense.

 

In 2014, the last year the single-rate system was in effect, Alberta’s basic provincial personal exemption was $17,787. Income earners below that paid nothing in provincial income tax.  As for everyone else, at $25,000 in income, 2.9 per cent went to provincial income tax. At $50,000, the rate was 6.4 per cent. A $100,000 income was taxed 8.2 per cent. The single tax system was progressive.

 

Next up, the silly notion that the single rate tax was a giveaway to the wealthy. Note the language. It assumes money belongs to government and not those who earn it. In that view, any tax relief is a gift. That inverts a more sensible view from citizens to politicians: We will pay reasonable and justifiable taxes, but don’t assume our earnings are your property.

 

A relevant fact: Higher- and middle-income Albertans pay most of the income tax, not those with lower incomes. That is why the former and not the latter would gain in any tax relief scenario.

 

For example, using tax data from 2014, those earning under $50,000 counted for 57.3 per cent of all tax filers and paid just 7.6 per cent of all provincial income tax.  Of note, almost 1.8 million Albertans were in that under $50,000 group in 2014, but nearly half (845,690 Albertans) quite properly paid nothing in tax due to low incomes. (Another 8,290 at higher levels also did not pay provincial income tax for various reasons, such as maximizing previously unused RRSP deductions.)  Those who earned between $50,000 and $100,000 counted for 27 per cent of all tax filers and paid 30.6 per cent of all provincial income tax.

Albertans whose incomes were more than $100,000 accounted for 15.7 per cent of Alberta’s tax filers; they paid 61.8 per cent of all provincial income tax. Point: If one’s argument is that the wealthy should pay a hefty share of Alberta’s income tax burden, the $100,000-plus crowd in Alberta already did (a proportion higher both of tax filers and of total taxes paid than in any other province).  Thus, any substantive tax relief will naturally benefit that group.

 

Here’s the summary: Even when the single rate tax was in effect, Alberta’s over $50,000 tax filers already paid 92.4 per cent of all provincial income tax. And even for those who earned less than $50,000, more than half — more than 920,000 Albertans — paid all the income tax collected from that group.

 

When someone claims a single tax is a giveaway to higher incomes, the rhetoric has it backwards: The gift is actually from more than 2.2 million Albertans at all income levels in 2014, to the more than 850,000 Albertans who quite properly, mostly due to low incomes, paid nothing for the cost of government.

 

READER COMMENTS

#1 – Don’t bother with hard numbers Mark. It doesn’t fit the left wing rhetoric. Math is too hard for them. Lies and innuendo is the tool of the left. And 100k + income earners only paying 62% of the tax. No, Canadians want those earning more than 100k a year to pay 100% of the tax. That way, they get closer to their dream of equality of outcome. The last thing you want to do is stump a Canadian with real facts.

#2 – Your most salient point is that money belongs to those who earn it….not the government. I accept that if we want the social services we now enjoy taxes must be collected. But it must be fair and not punitive, which it is right now.

#3 – Whenever taxes are reduced, the high tax payers will always get the biggest break. Usually the biggest complainers of this move, are the socialists who pay very little tax. When Alberta implemented the single tax rate they increased the personal exemption, if the provincial or federal governments really wanted to help low income earners, just raise the exemption Trump increased the personal exemption for everybody, which means the low wage earners got a major tax break from trump. Currently are personal taxes are twice as high as the US, so why would any professional want to live in Canada compared to the US from a tax perspective.  (End of article).

(This blog is of a general nature about financial discrimination of individuals/singles.  It is not intended to provide personal or financial advice.) This is a WordPress blog designed by a hired individual.

INCOME SPRINKLING PROMOTES FINANCIAL DISCRIMINATION OF SINGLE MARITAL STATUS ENTREPRENEURS

INCOME SPRINKLING PROMOTES FINANCIAL DISCRIMINATION OF SINGLE MARITAL STATUS ENTREPRENEURS

(These thoughts are purely the blunt, no nonsense personal opinions of the author about financial fairness and discrimination and are not intended to provide personal or financial advice.)

Opening statement:  Here we go again, yet another financial program that financially discriminates against singles.  Most singles, especially those who are not entrepreneurs, would not be aware that married entrepreneurs with and without children are able to do this type of tax manipulation.  The article “What the new ‘income sprinkling’ rules mean for tax planning” has been reproduced in its entirety to educate the reader on what ‘income sprinkling’ is all about.  “Income Sprinkling’ has been added as an example to Marital Manna Benefits and Marital Privileging section outlined in the feature post of this blog SIX REASONS WHY MARRIED/COUPLED PEOPLE ARE ABLE TO ACHIEVE MORE FINANCIAL POWER (WEALTH) THAN SINGLES (financial-power)

WHAT IS INCOME SPRINKLING?

“What the new ‘income sprinkling’ rules mean for tax planning” by Jamie Golombek (new-income-sprinkling-rules)

Small business owners, including incorporated professionals such as doctors, lawyers, accountants and others, will likely face a higher tax bill in the years ahead as a result of (Liberal) Finance Minister announcement this week targeting several common, and until now, perfectly legal, tax strategies used in conjunction with private corporations.

The strategies under attack can be categorized into three main areas: income sprinkling, earning passive investment income in a corporation and converting a corporation’s ordinary income into tax-preferred capital gains.

Among these changes, it’s the first one — income sprinkling — which is perhaps deemed the most offensive of the three and the one that will likely have the broadest financial impact on small business owners and incorporated professionals.

While there are various legal and government-sanctioned forms of income splitting, the most common one being the splitting of pension income or RRIF withdrawals (after age 65) with a spouse or partner, the Finance Minister chose the term “income sprinkling” rather than income splitting to describe how some families use private corporations to sprinkle income among family members. In a typical example, dividends that would have been received by the primary owner/manager of the private corporation, say, mom or dad, would instead be paid to the spouse, partner or kids of the primary shareholder, who are often in lower tax brackets than the primary owner/manager and thus the family’s total tax bill would be reduced.

This result stems from the fact that Canada taxes us on an individual basis, rather than as a family unit and imposes progressively higher tax rates on each individual, such that the higher your personal income, the higher your rate of tax. Canada also allows each individual a basic personal amount (equal to $11,635 in 2017) which effectively allows every Canadian to receive at least the first $11,635 tax-free.

Private corporations can pay dividends to family members who, if they have no other income, can use their basic personal amounts to shield such income from tax. For example, in Ontario, an individual with no other source of income could receive about $51,000 in eligible dividends without paying a cent of federal or provincial tax. In many corporate structures, it’s typical for the common shares to held by a family trust in which the spouse and the kids of the owner/manager are the beneficiaries and the trustee has discretion as to which beneficiary receives dividends each year and how much each receives.

As the government noted in its discussion document, “The income distributed to the family member may exceed what would have been expected, having regard to the family member’s labour and capital contributions to the business, in arrangements involving arm’s-length investors.”

Of course not all private corporations are engaged in income sprinkling as it typically only provides meaningful benefits when the family member that receives the “sprinkled” income is either in a lower tax bracket than the owner/manager or has tax deductions or credits, including the basic personal amount or tuition carryforwards, which otherwise would go unused.

In addition, the tax savings achieved through an income sprinkling plan must be material enough to justify both the initial and ongoing transaction costs associated with most income sprinkling arrangements, which often involve the setup and maintenance of a discretionary family trust and in some cases, multiple classes of shares.

When it comes to income sprinkling of salary income, the current tax rules are quite strict in that the Income Tax Act only permits “reasonable” amounts to be deducted from the corporation’s income when salary or management fees are paid to employees, including family members. This rule is meant to prevent a parent who owns a corporation from paying his spouse or child an annual salary when he or she doesn’t actually perform any work or provide services to the business.

When it comes to dividends, however, there is no reasonableness test in that anyone who owns share of the corporation may receive dividends. There is, however, a special tax known as the “kiddie tax” which came into place in 1999, to prevent income splitting with minor children (i.e. kids under the age of 18). Prior to this tax, known formally as “tax on split income” (TOSI), it was quite common for private companies to pay tens of thousands of dollars in dividends to toddlers, which would effectively be received tax-free as the kids would use their basic personal amount to shelter this income from tax.

The TOSI regime killed this planning nearly two decades ago by subjecting dividends from private company shares paid to minor kids to top, highest-rate taxation and denying the use of personal tax credits (other than the dividend tax credit) to shelter such amounts.

However, as the government noted, the current TOSI rules do not fully respond to income sprinkling involving adult family members. In its paper, the government took a close look at the age of individuals who reported non-eligible dividends on their tax returns. (Non-eligible dividends are generally dividends paid on private company shares from income eligible for the small business rate.) The government found that in each year reviewed, the amount of non-eligible dividends reported by those aged 18-21 exceeded both the amounts earned by the 22-25 and 26-29 age groups. As the government wrote, “this anomaly in the distribution suggests the presence of dividend sprinkling, because the tax benefits of income sprinkling are higher, on average, when adult children of high-income filers are younger and have lower income.”

As a result, this week the government announced proposed changes, to be effective in 2018, to extend the TOSI to certain adult individuals. Under the proposed new rules, an adult family member will be expected to contribute to the business, either in labour or capital, in order to be exempt from the TOSI on income received. In other words, the amount received by such adult family members must be “reasonable.” There is a stricter test for 18-24 year olds. In a nutshell, if the amount isn’t reasonable, then a top rate of tax will apply, putting an end to current strategy of dividend sprinkling among non-involved family members.

OPINION LETTER SUBMITTED BY AUTHOR TO MAJOR LOCAL NEWSPAPER – NOT PUBLISHED

Tax fairness proposals always stir up hornet nests for tax manipulators.

Fact check:  married or partnered persons with and without children have financial power to gift money to spousal RRSP, loan money to spouse at CRA 1% rate, contribute to and compound RRSP and TFSAs times two and pension split while singles never married or partnered, no kids get nothing comparable.  Plus incorporated married/partnered entrepreneurs can ‘income sprinkle’ to avoid taxes.

Journalists like the one who published “Big government has small business in its sights” malign unions, but incorporated business persons may have spouses who are union employees.  Union employees cannot tax manipulate.

Since singles in their financial circle are basically financially responsible to themselves (no spouse, no children),‘Income sprinkling’ is of likely of little benefit to single marital status entrepreneurs so they will pay more tax.  Tax fairness needs to be ensured regardless of marital status and how income is earned.

COMMENTS

Financial discrimination example of singles before retirementIncome sprinkling as outlined above.  Excerpt from above article states:  ‘The government found that in each year reviewed, the amount of non-eligible dividends reported by those aged 18-21 exceeded both the amounts earned by the 22-25 and 26-29 age groups. As the government wrote, “this anomaly in the distribution suggests the presence of dividend sprinkling, because the tax benefits of income sprinkling are higher, on average, when adult children of high-income filers are younger and have lower income.” ‘

Financial discrimination example of singles after retirement – Various legal and government-sanctioned forms of income splitting, the most common one being the splitting of pension income (family-tax-credits) or RRIF withdrawals (after age 65) with a spouse or partner leave singles (never married, no children and divorced) out of the financial equation.

When governments regardless of political party bring in unfair tax programs, and then later try to eliminate or change them to promote financial fairness, this is usually meant by profound resistance especially by those who benefit most from the programs (most likely wealthy since they benefit most from tax manipulation).

It is also interesting to note the various comments columnists and opinion writers have submitted on income sprinkling issue.  One columnist went so far as to say that this should be taken on as a feminist issue since the spouse, more likely to be female, supports their partner.  This author responded to the columnist by letter stating that if she wants to play the feminist card, then singles would like to play the ‘singlism’ card, since singles likely do not benefit at all from ‘income sprinkling’.

It is the opinion of this author the Finance Minister in this case was actually doing the right thing by levelling the financial playing field for ‘income sprinkling’.  The final outcome of this financial policy is yet to be determined.

(This blog is of a general nature about financial discrimination of individuals/singles.  It is not intended to provide personal or financial advice.)

OAS CLAWBACK OUTRAGEOUSLY BENEFICIAL TO UPPER MIDDLE-CLASS MARRIED OR COUPLED SENIORS, BUT FINANCIALLY DISCRIMINATORY TO SINGLES AND POOR

OAS CLAWBACK OUTRAGEOUSLY BENEFICIAL TO UPPER MIDDLE-CLASS MARRIED OR COUPLED SENIORS, BUT FINANCIALLY DISCRIMINATORY TO SINGLES AND POOR

(These thoughts are purely the blunt, no nonsense personal opinions of the author about financial fairness and discrimination and are not intended to provide personal or financial advice).

(six-reasons-why-married-coupled-persons-are-able-to-achieve-more-financial-power-wealth)

Occasionally, there are topics that give one pause resulting in questioning as to the efficacy of the  formulation behind the topic.  The OAS Clawback (proper name is OAS Recovery tax as per Canada Revenue Agency) and the financial discriminatory properties behind the program is one such topic.  One way to resolve the questioning is to look at the topic in detail.

OAS is a federal social program designed to provide a very modest pension to low- and middle-income retirees.  It is part of the universal government benefits for seniors (pillar 1) to ensure income security for senior Canadians.  In 2016 the OAS maximum amount is $6,680 for a single person and $13,760 for a couple. OAS clawback which began around 2011 does very little to clawback the income of upper middle class persons, particularly married or coupled family units.  The clawback of OAS benefits in 2016 starts with a net income per person of $72,809 (couple $145,618)  and completely eliminates OAS with income of $118,055 (couple $236,110).  The repayment calculation is based on the difference between personal income and the threshold amount for the year. The repayment of OAS is 15 percent of that amount.  All OAS is clawed back if personal income is over $118,055.

According to Human Resource Development Canada, only about five percent of seniors receive reduced OAS pensions, and only two percent lose the entire amount.  This program benefits wealthy couples and widowers the most.  OAS clawback for couple only begins at net income of $145,618 ($72,809 per person) thus allowing them to receive full OAS of $13,760 as a couple.  There are not many ever single seniors, early divorced in life seniors and single parent seniors who could hope to achieve a net income of $72,809; however, for wealthy widowers this may be easier to achieve and they are the ones who complain about clawback.

An example of OAS clawback is the following example:  

The threshold for 2015 is $72,809.  If your income in 2015 was $80,000, then your repayment would be 15 percent of the difference between $80,000 and $72,809:

$80,000 – $72,809 = $7,191

$7,191 x 0.15 = $1,078.65

You would have to repay $1,078.65 for the July 2016 – June 2017 period.

Many financial advisors will give strategies on how to avoid the clawback while benefitting married or coupled family units the most.  This is just another example of financial marital manna benefits and manipulation of assets that within the legal limits of Canada Revenue Agency’s laws allows married or coupled person to increase their wealth (manipulation-of-assets).  This also is just another example of the upside finances perpetuated in this country by politicians, government and businesses that benefit married or coupled persons the most (quality-of-life).

From a financial advisor comes this statement (claw-back):  “I also want to put the impact of the claw back into perspective. Although no one likes to give up $6,600 in free money, it’s not like you were going to get to keep it all anyway. As the OAS is taxable, most people in the claw back zone would have paid back over 30% of it in taxes.

Secondly, some clients look at paying claw back as the cost of doing business; while they may not love it, they look at it as a price of their own financial success and as money they really don’t need anyway. Moreover, they might correctly see that in some cases combatting the claw back isn’t worth the effort. For example, although the rest of the article will focus on how dividends are often bad news for retirees trying to avoid the claw back, these same people might also be reluctant to modify their investments to produce other types of investment returns, especially if that means unnecessarily courting more investment risk or triggering a big capital gain in order to rebalance their portfolios”.

Limiting OAS Clawback

There are a few strategies you can implement to reduce clawback amounts (strategies):

  1. Split your pension with your spouse. If your spouse has a lower income, you can transfer up to 50 percent to your spouse, which should reduce your overall income. This could also include a Registered Retirement Income Fund and annuity income.
  2. Dip into your Registered Retirement Savings Plan before you turn 65. An RRSP is only a tax deferral, meaning that at some point, you’ll have to pay those taxes. Consider taking funds out before reaching the age of 65 so you do not lose the OAS.
  3. Use your tax-free savings accounts to generate investment income, which is non-taxable and would not count towards your net income.
  4. Interest on funds borrowed to earn investment income can be deducted and could reduce your net income.
  5. Watch for capital gains. If you are planning a sale of an asset that could trigger large capital gains, consider selling it before you turn 65.

From another financial planner (minimizing-clawback):  “At the end of the day, more people’s concern over OAS clawback will not be such a big deal simply because there are not a lot of people over the age of 65 making more than $72,809 of income. The people that do may have significant pensions or continue to work and earn and income over the age of 65. There will also be a group of people that trigger significant capital gains from the sale of second property or investments but the good news is they will only lose part or all of there OAS in the one year that the capital gains is realized and reported on the tax return. But if you happen to be one of the few that will get affected, make sure you plan ahead accordingly”.

CONCLUSION

The OAS clawback (implemented by Conservative party) is just another example of how politicians and government have ensured that senior upper middle class married or coupled family units with incomes between $72,809 to $118,055 net income per person will benefit more from the OAS government program. These same politicians and government agencies have financially discriminated against ever single seniors, early divorced in life seniors and single parent seniors by ensuring only five percent of seniors will receive reduced OAS pensions, and only two percent lose the entire amount.  Note we have specifically stated upper middle class married or coupled family units because wealthy married and coupled family units have already been excluded from receiving OAS pension by virtue of the $$118,055 (couple $236,110) net income limit.

To add further insult, politicians and government have ensured that the upper middle class will receive benefit upon benefit upon benefit to reduce the effects of the OAS recovery tax program.  The Liberal party (now ruling federal party) implemented a 1.5% reduction in income tax for incomes between $45,282 and $90,563.  These are middle class incomes, not incomes of the poor. Pension splitting is another program that reduces the possibility of OAS clawback.  As stated above, past governments have also ensured that marital manna benefits and ability to manipulate assets have been been given primarily to married or coupled family units all within legal limits of financial laws.  All of these benefits perpetuate an upside-down financial system where the upper middle class and the wealthy are able to achieve greater wealth than ever single, early divorced in life and single parent seniors.  In other words, the OAS Recovery Tax program (supposed to provide income security for poorer seniors) is a failed program which ensures greater wealth for the upper middle class and greater poverty for singles and the poor.

SOLUTION (added August 31, 2016)

Equivalence scales (scales) and net worth –  how many times can it be said over and over again that wealthy and upper middle class married or coupled family units are increasing their wealth by government programs designed to give more to these family units?  To correct this financial discrimination and upside finances for singles and the poor, equivalence scales and net worth need to be applied to these programs.  Monies saved could then be redistributed to the poor regardless of marital status.

(This blog is of a general nature about financial discrimination of individuals/singles.  It is not intended to provide personal or financial advice).

HOW MARITAL STATUS IMPACTS DEDUCTIONS, CREDITS FOR MARRIED/COUPLED PERSONS

HOW MARITAL STATUS IMPACTS DEDUCTIONS, CREDITS FOR MARRIED/COUPLED PERSONS

These thoughts are purely the blunt, no nonsense personal opinions of the author and are not intended to provide personal or financial advice.

(While researching online for information on last two posts, this article came up:   “Love and taxes: Canadians confused on how marital status impacts deductions, credits” by Darah Hansen and published in Yahoo Finances on February 12, 2016 just before Valentine’s day.  This article and the comments following the article provide some interesting insight into thoughts of Canadian citizens on reporting of marital status on income tax forms.  This article and comments is also a good follow-up to the information entered in the last two posts.

Comments of the author of this post are shown in italics.)

Quotes From Article

Quote from article states:

  • ‘Recent survey by Leger, on behalf of H&R Block Canada, found that more than half of us mistakenly think that married and common-law spouses can file a joint return to save money on their taxes. Another 40 per cent believe it’s up to us to decide whether to claim our marital status on our tax returns, while a handful of respondents doubt the CRA (Canada Revenue Agency) has guidelines to determine that status.
  • Couples are required by law to check the correct status box in tax forms.
  • Family incomes in Canada are not combined for the purpose of calculating tax; however, they can be for the purpose of calculating income-tested benefits, such as the GST/HST credit or the National Child Benefit supplement.
  • Couples also stand to benefit from combining their charitable donations, transit passes and medical expenses.
  • And, new this year, parents of children under 18 years stand to gain from a newly announced federal tax credit. Often referred to as the “family tax cut”, the new measure allows a higher earning spouse to transfer in kind up to $50,000 in income to his or her spouse in order to collect a tax credit of up to $2,000.Canadian taxpayers are required by law to answer the marital status question correctly.  “If you lie, it’s tax fraud,” says Golombek…..
  • To be considered common-law, two people must live together in a conjugal relationship for 12 months or immediately if you have a child together. If you receive benefits you are not entitled to because of an incorrect marital status, you can bank on being asked to repay them.
  • One final misconception: About 44 per cent of Canadians believe that once you are divorced, you can claim as single the following year. But once you have filed as married, you can never claim single. You are instead classified as separated, divorced or widowed’, (end of quote).

Comments from Readers

The comments following the article, of which there were many, resulted in very different viewpoints.  Indeed, some comments turned out to be very derogatory and inflammatory as often occurs in forums of this kind.  Families with children call singles ‘selfish’ and single call families with children ‘breeders’, etc.  Analysis of the comments revealed some commonalities.

A large majority of Canadian citizens, it seems, don’t have a clue about declaration of their marital status on income tax forms, especially those that are married, divorced, separated, or living common-law.  Canada Revenue Agency (CRA) has very clear definitions of marital status, so why the confusion?

Some of the reasons why incorrect reporting of marital status on income tax forms are as follows, (these are comments that were submitted by the readers):

Unhealthy or unequal relationships with their significant other.  

  • One comment:  ‘good luck in filling as common-law in my case my partner refuses to file common-law, said his taxes are complicated, and we been together now for 5 years. I look at it he is hiding something and don’t want me to know his business.’

Some don’t seem to want to record their marital status as outlined in CRA rules. One of the biggest issues on recording marital status seems to revolve around those that are divorced/separated and what they will have to give to the other spouse in the way of child and spousal support.

  • ‘Once you are legally married you can never again claim “single”. If you divorce, you must say “divorced”, even if you were divorced 40 years ago. If you remarry, of course, you then check the “married” box once again. Until your partner dies, whereby you become “widowed” until you remarry or die yourself.  To be “common law” you will have been living together for 12 months prior to filing your taxes, – or right away if you have a child together and it happens to be less than that.  (Even if divorced for many year, marital status would still be divorced).’
  • ‘Making a “stupid decision” not to inform CRA about this issue will often come back to bite you.’
  • ‘There are more tax breaks for single moms then for being married. It is actually scary to tell them when you finally do get married. There goes everything.’
  • ‘Seems strange, usually you marry the mom not the kids. Not sure why she would stop getting benefits to support her kids. Note to self, stay clear of single moms and the tax man will pin you with the responsibility.’
  • ‘So why (does)  Revenue Canada have different category for divorced people? to have a reason to garnish…  They do this because people who are separated or divorced often have separation agreements/court orders for making support payments. Spousal support payments are taxable in the hands of the recipient and deductible for the payer. Since there are no slips that go with these payments they want to make sure that both parties are claiming it or including it correctly (i.e. not just being deducted by the payer and not included in income for the recipient).’

Many income tax filers have no clue what benefits they will get and how marital status will affect those benefits.  Married/coupled persons don’t seem to realize they will receive more benefits throughout their married/coupled lives than will singles, particularly ‘ever’ (never married, no kids) singles.

  • ‘Single working professionals get taxed the hardest with the fewest deductions.’
  • ‘There is no benefit in being married. Stay single especially single mothers.’ (Married/coupled persons seem to never be happy with the benefits they get).
  • ‘don’t forget to add to move in with your boyfriend either, if you want the benefits or to minimize your tax, of course based on that rationale they should struggle on one income just to get benefits is quite irrational thinking.’  (This presumably was a tongue-in-cheek remark to the above comment.)
  • ‘You may not see the benefits of being married when it comes to taxes, but financially there are a lot of benefits to not be single. Sharing costs like same  housing is huge and when finances are done with purpose in mind can lead to wealth creation.’ (This is known as being able to live more cheaply because of economies of scale-Six Reasons why Married/Coupled Persons able to Achieve More Wealth). six-reasons-why-married-coupled-persons-are-able-to-achieve-wealth/
  • ‘But there is no denying  that two people going in the direction accomplish way more than one person by him/herself….. those who stay together are better off statistically in a financial sense than those who go about it alone.’ (This is because of  ability to accumulate wealth times two persons and ‘rule of 72’ -Six Reasons why Married/Coupled Persons able to Achieve More Wealth)
  • ‘Couples can transfer unused credits to each other. Singles lose unused tax credits.’  (This is because of marital manna benefits – Six Reasons why \Married/Coupled Persons able to Achieve More Wealth)
  • ‘I was once told by my neighbour that he and his wife would be better off financially if they divorced. Obviously not ALL Canadians are confused about tax credits and deductions. (Next comment) Not so. Couples can transfer unused credits to each other. Singles lose unused tax credits.’  (This is known as manipulation of assets as stated in ‘Six Reasons why Married/Coupled Persons able to Achieve More Wealth).
  • ‘I have never paid more than what I owe based on my income whether single, married or divorced. The only difference it makes is for benefits like GST rebates, etc….’
  • ‘Family incomes in Canada are not combined for the purpose of calculating tax.’  
  • ‘They are only combined for potential benefits such as GST tax credits… etc…..you can transfer unused tax credits to lower the spouse’s taxable income, thereby reducing their taxes. CRA combines them for the purpose of calculating GIS benefits and HST refunds.’

Some tax filers choose to falsely record their marital status, though they know they are committing fraud.

  • ‘Most Canadians play dumb as they are fully aware they are breaking the rules and pretend like they didn’t know. They cheat hoping they will not get caught.’
  • ‘If you are married the tax form asks for your spouse’s name, SIN and whatever.’
  • .It’s not your fault you didn’t get caught. It is your fault for claiming single while married. Let me simplify this for you. Two scenarios. Husband and wife. Both make $35k. If they claim single each pays tax on $35k. If they claim married EACH pays tax on $35k. The combining is only for tax credit purposes. Percents don’t change due to marriage or not. Govt fraud is irrelevant to this conversation. And if it is true… then so what … two wrongs make a right? Seriously you need to get professional advice. Just because you have not ‘been caught’ yet does not mean it won’t happen. You are cheating and if you are getting tax credits fraudulently, you will pay a penalty if caught.
  • For those who don’t think there are repercussions to false filing, you can view the convictions from each province at Google “CRA Criminal investigations actions, charges, and convictions”.

Many more comments were made and are too numerous to be included here.

CONCLUSIONS

  • If there is confusion about how to record marital status on tax forms, get professional help.
  • Incorrect filing of marital status on tax forms constitutes fraud.
  • Education, education, education – married/coupled persons need to educate themselves on all the benefits they receive from date of marriage to after their spouse is deceased.  They need to realize that singles have been left out of financial formulas and do not receive benefits such as transfer of spousal credits, pension splitting, tax relief if one spouse is in nursing home, etc. even though it costs singles more to live than married/coupled persons living as a single unit.
  • Singles deserve to be included in financial formulas at 70% of that given to married/coupled persons.  Many singles have worked throughout their entire lives  (35, 40, 45 years) and,with their taxes have supported  married/coupled persons and their families; therefore singles deserve equal financial representation in financial formulas.
  • Problems that divorced/separated persons have with spousal/child support, etc. should not be the problem of singles and should not be a reason to say that ‘singles’ are lying on tax forms (especially ‘ever’ singles who only have one option to record on tax forms, that is ‘single’).

This blog is of a general nature about financial discrimination of individuals/singles.  It is not intended to provide personal or financial advice.

CONTINUED FINANCIAL ILLITERACY OF FINANCIAL GURUS EQUALS FINANCIAL DISCRIMINATION OF SENIOR SINGLES (Part 2 of 2)

CONTINUED FINANCIAL ILLITERACY OF FINANCIAL GURUS EQUALS FINANCIAL DISCRIMINATION OF SENIOR SINGLES (Part 2 of 2)

(These thoughts are purely the blunt, no nonsense personal opinions of the author and are not intended to provide personal or financial advice.)

This blog post is a comment on the Broadbent Institute Report on the economic circumstances of Canadian seniors.  The Broadbent Institute is a left-leaning social democratic think tank founded by Ed Broadbent who was a past leader of the New Democratic Party .  It describes itself as an independent, non-partisan organization championing progressive change through the promotion of democracy, equality, and sustainability and the training of a new generation of leaders.  Its mission is to “Support, develop, and promote social democratic principles for the 21st century”, “Propose new solutions for a more equal society”, and “Equip a new generation of progressive campaigners & thinkers with the tools they need to build a social democratic society through training and education”.

This post addresses excerpts from the report first (Part 1), and then is followed by comments on the report (Part 2).

COMMENTS ON  REPORT – PART 2 OF 2

In February, 2016 the Broadbent Institute in Canada and Richard Shillington of Tristat Resources published the report:  “An Analysis of the Economic Circumstances of Canadian Seniors”.       (analysis_of_the_economic_circumstances_of_canadian_seniors)

The report information is mainly directed towards poverty of seniors without an employer pension plan (roughly 47 per cent) and therefore, many of these seniors have wholly inadequate retirement savings.

(It should be noted in the report that single seniors does not refer to marital status, but the fact that they live alone.  Therefore, single seniors includes ‘ever’-never married, no kids-singles, divorced/separated, and widowed seniors living alone).

Review of the report reveals some points that are very disconcerting.

  • The true facts of what it costs singles to live is under-reported.  Married/coupled persons and, indeed, the author of the Broadbent report do not seem to realize that the widowed (married/coupled persons whose spouses are deceased) are a part of the singles population.  It is a well known fact that it costs singles approximately 70 per cent of what it costs married/coupled persons to live as a single unit.  This fact is never addressed in the report. (Using LIM 11.1 percent of seniors live in poverty–719,000 seniors:  419,000 singles and 250,000 living in an economic family.  The poverty is astonishingly high at almost 30 per cent for senior singles without employer pension plans).  (Widowed persons and the extra benefits they get are discussed later in this post).
  • All the extra benefits that have been given to married/coupled persons are never addressed.  Governments continue to create financial silos where more and more benefits are given to married/coupled persons even though they are able to live with less because of economies of scale, but not to singles resulting in financial inequality.  (Following table was updated on March 8, 2016 with additional information).

financial silos6

  • It is ludicrous that this report does not treat home equity as a retirement asset.  Those who have to rent are at a much greater financial disadvantage than those who own their own home.  Quote from report : “ …..Many of those who argue that there is no looming pension crisis have included home equity as a liquid asset.  This analysis has not treated home equity as a retirement asset because the replacement rate analysis has as its objective an income that allows one to enjoy a lifestyle comparable to that which existed pre-retirement.  We do not include home equity here because we accept that the pre-retirement lifestyle for many middle- and moderate-income Canadians include continued homeownership”, (Page 19).

According to Statistics Canada 2011 articles “Living Arrangements of Seniors” and “Homeownership and Shelter Costs in Canada”:      (statcan.gc.ca) and (statcan)

  • The average household total income for couple-family households was about twice that of non-family households (which were primarily one-person households) and lone-parent households ($101,000 per year versus $43,000 per year and $55,000 per year respectively).  Thus, while lone-parent households and non-family households had a lower cost than couple-family households, the lower household total income results in a higher proportion exceeding the affordability threshold”.
  • Approximately 69 per cent of Canadians own their own home.  About  four out of five (82.4%) married/coupled people own their own home, while less than half (48.5%) of non-family households (singles) own their dwellings.  Just over half (55.6%) of lone-parent households own their dwelling.  (It stands to reason that more senior married/coupled and widowed persons will own their own homes, while senior singles–‘ever’ single and early divorced)–are more likely to have to rent placing them in greater income inequality and a lower standard of living and quality of life). Regardless of housing tenure, the proportion of non-family households and lone-parent households that paid 30% or more of total income towards shelter costs was about twice the proportion of the couple-family households.
  • Quote “approximately 56.4 per cent of the senior population (5 million total seniors in 2011) live as part of a couple and about 24.6 per cent of the senior population live alone (excludes those living with someone else, in senior citizen facilities and collective housing).

Singles are constantly told to ‘go live with someone’ when they have difficulties paying for housing; meanwhile married/coupled and widowed persons may be living in their big houses (enjoying the same lifestyle they had before pre-retirement) and seeking help with paying their taxes while refusing to move to a less expensive dwelling.  (senior-singles-pay-more-part-3-of-4)

  • It is ludicrous for this report to state that seventy per cent  income replacement should be a benchmark in the formulas.  Seventy per cent income replacement is entirely different for those who own their own home versus those who rent.  It is selfish to think that the rich and married/coupled persons should be able to live same lifestyle post-retirement as pre-retirement when singles and early divorced generally will have a poorer lifestyle throughout their entire lives.

An example is the Financial Post financial evaluation “Bright Future Despite Big Debt, Small Income” published in Calgary Herald on February 20, 2016 where Ontario young couple’s after tax income is $4,800 per month and their food budget is $800 and entertainment $160 per month for two people.  Just these two items are 20 per cent of their budget.  Either they live in an area with very high food costs or they are living the high life for one of the necessities of life in Maslow’s Hierarchy of need.  Seventy per cent replacement at retirement would give this couple an unreasonably high style of life for food in comparison to singles.   Reader letter mentioned above in ‘senior-singles-pay-more-part 3-of-4’ link suggested singles should be able to live on just $200 per month for food.

  • It is ludicrous to suggest that persons without employer pension plans cannot save, especially those with incomes over $100,000.

Quote from report:  “For those with incomes in $50,000-$100,000 range, the median value (savings) is only $21,000” (Page 3).

If those with pension plans have forced saving, it it is ridiculous to say that those without pension plans are not able to save.  For example, a $75,000 before-tax income may result in $600-$700 per month being deducted from pay cheque (employer deductions are excluded in this discussion).   It is also ridiculous to say that in this First World country persons with $100,000 plus incomes cannot save.  One of the principles of good finances is to save 10 per cent.  Whole report promotes greed of looking for more benefits and not planning for the future if there is no plan for saving during working years.

  • Reporting false information on marital status is a crime.  Quote from report states:  “Table 7 represents the results of increasing the single and married GIS amounts by the same percentage.  One should keep in mind that there is an incentive for seniors to appear as singles to governments even if they are living as a couple.  This is because the GIS for senior couples is less than twice the amount for singles.  An increase in the GIS for singles only (with no increase for couples) would increase this so-called ‘tax on marriage’ and associated incentives.  This would encourage couples to hide their cohabitation from the authorities for financial reasons”, (Page 21).

GIS for senior couples should, repeat, should be less than twice the amount for singles.  Singles (particularly ‘ever’ and early divorced singles including the author of this blog) have worked very hard to have financial formulas include singles at 70 per cent of married/coupled persons living as a single unit.  The GIS for senior singles is more than married/coupled persons because it costs more for singles (including widowed persons)  to live than it does for married/coupled persons living as a single unit.  Why can’t married/coupled persons understand this?  When married/widowed persons become widowed their living costs will go up.

The statement  “An increase in the GIS for singles only (with no increase for couples) would increase this so-called ‘tax on marriage’ and associated incentives. This would encourage couples to hide their cohabitation from the authorities for financial reasons” is absurd and selfish.  Tax on marriage, why can’t married/coupled persons realize all the extra benefits they receive as outlined in table above???  When is ‘enough’ ever going to be ‘enough’ for them???

The notation (# 28) at the bottom of page 21 states:  “While legislation treats those cohabiting the same regardless of their marital status, it is easier to deceive the government if you are not married”.  This statement is false and backwards.  If it is anyone being deceitful, it is the married/coupled persons.  Can someone explain why it would be easier to deceive the government if you are not married (‘ever’ single)?  The issue with false reporting lies with those who are married/coupled, divorced or separated.  They are trying to ‘milk’ the system by falsely reporting their marital status even though the Canada Revenue income tax rules clearly define the parameters of marital status.

False reporting is a crime.  It would be very easy to track deceit by following income tax declaration of marital status and address of residence over several years.  Deceit of married/coupled persons would incrementally increase the monetary value they would receive from the deceit as it costs them less to live as a couple than it does single persons.

It seems married/coupled persons want it all even if they have to lie about it.  So what will they do when their spouse goes to a nursing home or is deceased?  In order to collect the benefits they are entitled to as one spouse living at home and the the other in a nursing home and widowers, they will need to lie again and change their marital status from single to married/coupled or widowed when filing their income taxes.

‘Ever’ singles (never married, no kids) throughout their entire working lives pay same amount of taxes as each individual (with equal income to the single person) reporting income tax in a married/coupled relationship and have supported/subsidized families who use mom/baby hospital care, EI benefits for maternal/paternal leaves, etc.  They are never recognized for their tax support and for using less resources than families.  Since singles have paid supportive taxes throughout their entire working lives, they deserve to live with the same financial dignity and respect as seniors and as married/coupled persons.  As seniors, ‘ever’ singles deserve to have their own space and their own bathroom and not be forced to cohabitate with other persons.

The real financial lives of singles is revealed when a simple math calculation is used for the targeted tax relief where a single senior can now earn $20,360 and a senior couple $40,720 before paying federal income tax.  This so called tax relief for seniors allows federal tax relief for singles equal to $1,697 per month and for senior couples $3,393 per month.  The tax relief for senior singles hardly covers a rent or mortgage payment of $1,200 and $250 for food per month (Maslow’s Hierarchy of Need), but amply covers this amount for a senior couple.  For a couple $1200 for rent or mortgage and $500 for food leaves $1693 (or 50% of $40,000) for other necessities and maybe even a nice little vacation all tax free.

CONCLUSION

It is incredible how in just a few paragraphs a think-tank can undo the hard work that singles have been trying to achieve in seeking financial equality.  Think-tanks and financial gurus continue to practice financial illiteracy on what it truly costs singles to live.   (false-assumptions-four-ways-seniors-singles-lose outand (financial-gurus-financially-illiterate-about-singles-finances)

Even though the final statement of the report states:  The GIS is the most effective federal mechanism in the short term for reducing the poverty rate and the impact of poverty on seniors, and it can be targeted at senior singles who need it the most”, there are many shortcomings to this report.

This report is encouraging irresponsible financial behavior.  It is morally, ethically and socially reprehensible in a First world country to say that one cannot save with an income over $100,000 and to promote financial inequality and discrimination of singles.

The Broadbent Institute is supposed to be about ‘a more equal society’, so where is the financial equality?

SOLUTIONS

In order to ensure financial equality between singles (including widowers) and married/coupled persons the following measures need to be taken:

    • change financial formulas so that senior singles receive 70 per cent of whatever is given to married/coupled senior persons as it costs more for singles to live than it does married/coupled persons because of economies of scale
    • financial formulas should be revised to include all senior persons regardless of marital status in one financial formula.  To eliminate financial silos that benefit married/coupled persons most, delete benefits already given to married/coupled persons such as pension splitting (benefits the rich most) so that there is a level financial playing field for all regardless of marital status. (It is understood that it is expensive to raise children and  benefits given for children should last for first twenty years of the life of the child.  However, beyond the twenty years of the children, any other benefits given to married/coupled persons should be deleted or should also be given equally to singles at rate of 70 per cent)
    • create a side-by-side list of all possible benefits under categories of married/coupled, widowed and single and analyze the total value of benefits in each category (see table above).  Financial formulas should be created equally for all categories, not just the married/coupled and widowed.
    • delete allowance benefit that has been ruled to be discriminatory by the courts
    • education, education and more education on financial literacy for singles.  Think tanks, financial gurus and married/coupled people need to educate themselves on what it really costs singles to live.

(These thoughts are purely the blunt, no nonsense personal opinions of the author and are not intended to provide personal or financial advice.)

 

 

SIX REASONS WHY MARRIED/COUPLED PEOPLE ABLE TO ACHIEVE MORE FINANCIAL POWER (WEALTH) THAN SINGLES

SIX REASONS WHY MARRIED/COUPLED PEOPLE ARE ABLE TO ACHIEVE MORE FINANCIAL POWER (WEALTH) THAN SINGLES (Revised December 1, 2017)

These thoughts are purely the blunt, personal opinions of the author and are not intended to be used as personal or financial advice.

There are many examples of financial discrimination of singles throughout the world.  Canada is no exception.  Six possible reasons as to why married/coupled people have so much more financial power and are able to achieve more wealth than singles are as follows:

(NOTE:  Most of following reasons can be applied to income and tax rules of any country.  Canada Revenue Agency is equivalent to IRS in the USA and RRSP/TFSA are equivalent to Roth IRAs, 401(k) and other savings plans in the USA.)

  1. Marital Manna Benefits and Marital Privileging – From beginning of marriage/cohabitation until death of spouse/partner, married/coupled people are able to use benefits to their advantage. (One example is Canadian pension splitting (cra), a method for reducing the taxable income of one spouse by allocating pension income on the tax return to the other spouse.  One spouse can give up to 50% of their eligible pension income to their spouse so that they can reduce their combined payable income taxes.  Another example is income sprinkling (added October 30, 2017).  For example, dividends that would have been received by the primary owner of the private corporation, would instead be paid to the spouse, partner or kids of the primary shareholder, who are often in lower tax brackets, therefore, the family’s total tax bill would be reduced.  Since singles in their financial circle are basically financially responsible to themselves,‘Income sprinkling’ is of no benefit to single marital status entrepreneurs so they will pay more tax.)  Singles get nothing that is comparable.

 

  1. Married/coupled people have possibility of multiplying their wealth times 2, all things being equal for both parties. (Examples:  Registered Retirement Savings Plan (RRSP) and Tax Free Savings Account (TFSA) times two for the spouses; RRSP/TFSA times one for the single person.  (RRSPs are savings plans using before tax income – interest/investment revenue earned is taxable on withdrawal from the account.  TFSAs are savings plans using post tax income – interest/investment revenue earned is completely tax free).  TFSAs, because they are tax free, are never counted as part of total income; therefore, it is possible to have huge TFSA accounts and still receive full Old Age Security (OAS) supplements and without OAS clawbacks.  OAS is supposed to support those with low incomes, not the wealthy (added Dec. 15/17).  Singles can never catch up to married/coupled contribution amounts.

TFSA table1

(December 1, 2017-more graphs showing TFSA potential have been added at the end of this post).

  1. ‘Rule of 72’ (compound interest) times 2-In finance, the ‘Rule of 72’ (Rule_of_72)is a method for estimating an investment’s doubling time. For example, assets invested at a certain percentage should double/triple over a period of time, thus increasing wealth for the total income asset.

Since married/coupled people are potentially able to contribute more to factor times two without single people ever being able to catch up, married/coupled people are also potentially able to exponentially multiply their wealth (i.e. interest from investments) by rule of 72 to a greater advantage than single people.  (If money is invested at 7% for 10 years, it should double in ten years, or inversely if it is invested at 10%, it should double in seven years).

  1. Manipulation of finances-married-coupled people are able to manipulate finances (all within legal limits of the financial laws of Canada Revenue Agency). Wealth generated from the manipulations can be likened to a gourmet ice cream cone.  Ability to put monies into RRSP/TFSA are equivalent to ice cream cone for married/coupled persons and singles.  The ability to gift money to spouse or to have only a 1% rate for loan of monies to spouse/partner can be likened to chocolate dip, maybe even two or three dips, on ice cream cone for married/partnered persons, but not for singles.  The interest/investment monies earned from the manipulation can be likened to the gourmet sprinkles on the top of the ice cream cone for married/coupled persons, but not for singles.  (Who in world gets a 1% loan rate except married/coupled persons?)

 

 

Examples: manipulation for tax purposes:

Spousal RRSPs Gift – If a spouse’s income from part time work will be low for a certain year (withholding amount is equal to amount tax owed for the year), the entire balance of the spouse’s regular Registered Retirement Savings Plan (RRSP) can be cashed out in increments of less than $15,000 per day.  The net amount can be contributed to a new spousal RRSP via a gift of money to the other spouse, who then contributes to the spousal plan for the spouse cashing in the original RRSP.    If this isn’t double dipping/triple dipping all within legal limits of the law, then what is?(income-splitting-strategies) Singles get nothing that is comparable.

Another example is Canada Revenue Agency’s (CRA) 1% lending rate benefit -Financial Post “How to gain from CRA’s 1% lending rate” (how-to-take-advantage-of-the-cras-1-prescribed-interest-rate).  The strategy involves lending money to a spouse/partner to split investment income and to get around the attribution rules, which are designed to prevent most attempts at income splitting among family members.  Basically, the rules say if you give your spouse or partner money to invest, any income, dividends or capital gains earned from the money so invested are attributed back to you and taxed in your hands.  Who in world gets a 1% loan rate except married/coupled persons?

USA example is Social Security (high-price) that privileges married/coupled persons in many ways.  Married woman can receive up to 50 percent of husband’s benefits while husband is alive. Spouses can also receive 100 percent of their dead spouse’s benefits, if the deceased’s benefits are higher than the recipient’s would have been.  Also, when married women reach retirement age, they can claim Social Security as a spouse and then later as a worker. For example, they can sign up for spousal benefits at age 66 and then wait four years before claiming their own benefits, because by delaying they accrue credits which increase their benefits by a certain percentage (depending on their date of birth).

  1. In many circumstances, because of economies of scale, married/coupled people are able to live more cheaply than single people. Equivalence scales are one way of proving this (equivalence-scales) – added October 3, 2016.
  1. Married/coupled people will most likely receive two inheritances to singles’ one inheritance all things being equal.  (Outside the box the box thinking, because singles are at a financial disadvantage –cannot multiply wealth same as married/coupled siblings, cannot live as cheaply as married/coupled persons, do  not receive same benefits as married/coupled persons, sibling family units receive more benefits from parents than single person for things like gifts, RESP for grandchildren, etc., –parents should consider adding an additional 20 per cent to  their single children’s inheritances than or married/coupled siblings.  Added January 14, 2016).

 

 

 

FROM DECEMBER 9, 2011-FINANCIAL POST ALL-STAR PLAN (finance/all-star-plan)

This is a great example of how married/coupled people have benefited from the 2011 tax revisions for pension splitting at the expense of singles who have not been given the same tax advantages.

Analysis of the information shows:

  • both are age 60
  • both are already working part time at age 60 (singles generally cannot work part time at any time throughout their employment lifetime)
  • they have been able to acquire multiple properties
  • they are in the position of having as much as 60% more spendable income in retirement than while they were working
  • he is already getting income from a defined benefit pension after having only worked for 25 years
  • both want to retire at age 63 (how fortunate that they can do that)
  • in retirement, they can split pensions to keep each partner’s taxable income in the lowest tax bracket.  He can split pension income with his wife and keep more of their wealth for themselves.  By pension splitting he can distribute $19,500 a year to her and save 7% on taxes.  Seven per cent amounts to a lot of money.  (Singles are never able to achieve this amount of financial benefit).
  • if pension income, including RRIF distributions, is carefully split the couple is not affected by the OAS clawback (how nice, they even get to keep all of the OAS)

FROM INFORMATION RELATING TO DISCRIMINATION FROM MONEYSENSE MAGAZINE- September/October 2010, ‘Single and Secure’, it states:

‘Singles of all ages face discrimination in housing, taxes…..and even travel and entertainment.  All of these things can result in disproportionately higher costs per capita for singles than married couples.  For instance, a couple with two incomes generally has an easier time qualifying for a mortgage….Coupled with those higher expenses is the fact that the median income for households headed by a single person is substantially lower than for couples.  According to Statistics Canada, the median family income for a household headed by a couple in 2007 was $73,000 annually, more than double that of a household headed by a single person with at least one child, at $34,500 annually.  Singles on their own fare even worse.  The annual median income for their households is only $22,800…

When you also take into account the fact that singles devote a larger percentage of their income to basics such as food…and utilities…it’s easy to see how singles often find they have little money at the end of the month…We hate to say it, but the sad truth is that most singles have to save a higher percentage of their income than couples (sic for retirement) to ensure a happy retirement.  There are three main reasons for this.  First, singles lack the economies of scale that couples have…The second reason is because singles lose out in a big way when it comes to taxes.  In Canada taxes are applied to individuals, not families.  That means a single person earning $100,000 a year pays far more income tax than a couple earning the same amount between them…In retirement , singles can’t take advantage of pension splitting, so they could end up paying more tax on their RRSP savings when they withdraw them as well…

’When it comes down to strictly financial and tax matters, the numbers show that everyone could benefit from being married’…The final strike against singles is that  they are much less likely to own their own home…a single person with a paid-off home will need to replace about 60% of his or her working income (sic for retirement).  If you don’t own your own home, that jumps closer to 75%…(sic for retirement investments, things to watch out for)…The first is that because of the higher per capita taxes for single households, plus the lower net incomes, most single households will have smaller investment portfolios that an equivalent couple.  This unfortunately means that investing expenses will take a proportionately larger bite out of your portfolio….’

CONCLUSION

Careful consideration of the above should leave no doubt that married/coupled persons have a distinct advantage of achieving financial wealth over single persons.

Singles need to lobby government, decision making bodies and families about financial discrimination of singles.  To affect change, it is important for singles to educate others about this discrimination and the importance of including singles equally to married/coupled persons in all financial formulas.

See next page for more graphs on TFSA potentials.

The blog posted here is of a general nature regarding financial discrimination of individuals/singles.  It is not intended to provide personal or financial advice.

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TFSA potential1