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December Newsletter - Ho Ho Ho, Happy tax shelter  Thumbnail

December Newsletter - Ho Ho Ho, Happy tax shelter

By Scott Blair

We bring you tidings of Gold, Frankincense and Myrrh. You’ve probably heard this your WHOLE LIFE if you’ve been raised in North America or are Christian or have a radio playing any time during December. But apart from the gold part, what on earth are Frankincense and Myrrh? 

Frankincense and myrrh are derived from the gummy sap that oozes out of the Boswellia and Commiphora trees, respectively, when their bark is cut. They are extremely fragrant, particularly when burned, with frankincense giving off a sweet, citrusy scent and myrrh producing a piney, bitter odor.

Yay incense?  OK we don’t really get it either but we do get how much better a trio sounds. 

Let’s put this in financial perspective, or at least try to. Gold is a financial commodity.  If you buy and sell it, there is a tax implication. How do we avoid taxes? This is exactly what Pontius Pilate was looking for. Remember him? He was a bad guy later in the story. But back to avoiding taxes…

The simple answer in today’s terms comes in a different trio. RSPs, TFSAs and Whole Life Insurance. 

(Sidebar:  Most Canadians are not using their TFSA to save taxes on investing growth, which is the whole point.  Most are using them as savings accounts, emergency funds etc.  Another topic for another day…)

For the 2020 tax year, we are able to apply as much as $27,830 or 18% to our RSP.  TFSA contribution room is $6,000/year.  What if you wanted to get more money working for you tax free? 

The third participant (Myrrh?) is life insurance. Not only can you buy it but you can make it work for you. Of course, we all have a need for life insurance: income replacement, cover the mortgage in case of the loss of an income earner, and so on. BUT, if you combine those simple needs with a tax free savings component, it starts to make real sense. 

View it like this. We all have both equities and bonds based on the fundamental concept of diversification in our investing accounts.  What if you also contributed to a whole life insurance policy? It is another asset class, a low risk one. Over time, it builds up, tax free.  Down the road, it is redeemable, called cash surrender values, whenever you need it. Call that an emergency fund. How is that a bad thing? 

Call if you have questions. HO-HO-WHOLE LIFE. We were waiting to do that; o)