All posts by Financial Independence Hub

Liberal tax policy: a question for Canadian voters

The second PM Trudeau

By Trevor Parry

Special to the Financial Independence Hub

Prime Minister Justin Trudeau, in his dogged defense of what are the most fundamental tax proposals made since the report of the Carter Commission (which gave us our modern Income Tax system) claimed last Thursday that it is wrong that someone earning $50,000 a year as salary pays more in tax than someone earning $300,000 in their corporation.

Many tax professionals have dissected this ridiculous statement and could in considerable detail discuss where Mr. Trudeau was in error.  In simple terms Mr. Trudeau would have you believe that the corporate shareholder lives in a different world where they are not affected by personal taxation.

According to the Ernst & Young tax Calculator an Ontario resident earning $50,000 would pay just under 30% on their income or $8,311 in taxation. The Ernst & Young Tax Calculator can’t factor in the value of a company or government funded health benefits program or pension plan.

If we turn to the corporate tax result, an active business earning $300,000 of profit in Ontario would be subject to taxation at 15%.  We don’t need a sophisticated tax calculator to determine that this equates to $45,000.  One should be baffled.

Corporate income also attracts personal taxation

Mr. Trudeau also is comparing apples and oranges.  Does the entrepreneur who owns the business pay themselves anything? Regardless of whether they take income as salary or dividends it will attract personal taxation.   Let’s say that they took a salary of $50,000, the same as Mr. Trudeau’s downtrodden employee.  They would also have paid $8,311 in tax.

They might have had to pay themselves considerably more in order to afford an RRSP contribution, as it is highly unlikely they have a pension plan in place.  If they decided to invest that $300,000 in their corporation any income or growth on that asset would be taxed almost at the same rate as an individual and when they withdraw the money as a dividend they would pay tax at the rate of 45.3%.

Perhaps the shareholder is as malevolent as Mr. Trudeau and “Red” Billy Morneau believe and they are deducting all of their lifestyle costs, including mortgage, food, transportation, vacations, toothpaste, etc. as a corporate expense.  They would be guilty of tax evasion and the Criminal Code has provisions for dealing with that.

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Debt Ceiling to rise: “Clark … Could you maybe spare a little extra cash?”

By Kevin Flanagan, WisdomTree Investments

Special to the Financial Independence Hub

I’ve written a couple of posts about the debt ceiling debate over the last few weeks, but let’s move past that topic and assume the U.S. government will be able to resume its borrowing needs in full, come the fourth quarter. (Editor’s Note: On Thursday, President Trump struck a deal with Democrat leaders to raise the debt limit and finance the Government until mid-December.)

What will investors find when Treasury has the ability to come to market with its full arsenal of t-bill and coupon issuances? The latest press briefing from the nation’s debt managers reminded me of the scene from the movie National Lampoon’s Vacation when Cousin Eddie asks Clark, “Could you maybe spare a little extra cash?”

The Details

For the period of July through September, Treasury estimates it will borrow $96 billion in net marketable debt, but its financing requirement will then ramp up to a hefty $501 billion in the fourth quarter. Remember, the calendar’s fourth quarter is actually the first quarter of fiscal year (FY) 2018. To put the fourth quarter number into perspective, the figure would be more than the projected $426 billion for all of FY 2017 combined, underscoring the added burden for the upcoming quarter.

The “Whys”

What’s causing such a huge increase in the government’s borrowing needs? First, the underlying budget deficit will need to be addressed. For the record, thus far in FY 2017, the red ink total has come in at -$523 billion through June, leaving one-quarter of the current fiscal year still remaining. For FY 2018, the Office of Management and Budget is projecting the deficit to come in at -$589 billion, up $149 billion from the prior estimate. Second on the list is Treasury’s goal to lift its quarter-end cash balance back to a more “normal” level of $360 billion for the end of December.

The debt managers foresee their September quarter-end balance dropping down to a low of $60 billion, compared to $353 billion a year ago. This drawdown reflects outlays that will be needed as a result of the stagnant debt ceiling. Along those lines, Treasury stated that it “expects to be able to fund the government through the end of September.”

The Final Piece

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4 small-cap Tech Stocks to watch

By Sia Hasan

Special to the Financial Independence Hub

The small-cap technology stock sector is fascinating in that it’s comprised of companies that have the potential to grow fast. Small caps are considered riskier than large- or mid-caps, and this means they have a higher potential for making huge profits for investors.

However, this is not to say that you should invest in small-cap tech stocks blindly. With a little due diligence, you can accurately determine the winning companies that can overcome the risks to move higher and give you lucrative returns. Here are some of the top small-cap stocks that are already excelling in the stock market, and which you might consider for investment.

Oclaro Inc. (OCLR, Nasdaq)

Oclaro Inc. is an optical networking company that’s a serious player in optical networking for high-speed global networks. The company offers transmission products and modules to telecom firms, enterprise networks, and data centers. While OCLR is a small-cap company, it is in competition with some of the biggest players in networking, such as Cisco Systems. However, OCLR focuses on core markets and high-speed components, and this has given it the cutting edge in the industry.

The company has shown great potential for growth, especially after establishing a solid position in China. OCLR aims at modernizing and upgrading its computing and telecom speeds, an indication of impending growth for the company. This great potential makes it an ideal company to invest in as its stocks are bound to generate even better returns in the years to come.

Celestica Inc. (CLS, NYSE)

Celestica Inc. is a popular company in the electronic manufacturing services (EMS) industry. Based in Canada, it provides a broad range of products such as wireless networking, telecommunication equipment, smartphones, storage devices, and printer supplies to original equipment manufacturers. The company has consolidated its services, allowing clients to purchase various products from them. This gives Celestica the upper hand in the industry in case of instances of market contraction in the EMS industry.

In the past few years, Celestica has begun to focus more on becoming a niche market provider rather than on the consumer market. This is because a significant proportion of its revenue comes from industrial companies. Management projects that the net profit margin will continue to grow from the current 2.18 per cent, making the company an excellent choice for some investors.

Zillow Group (Z, Nasdaq)

Zillow Group is a small-cap company that operates one of the largest a real estate informational websites and a mobile phone application. Continue Reading…

The best credit cards to establish credit

(Sponsored Content)

Building credit is a curious process. To be approved for a most credit cards you really need to have an established credit history already in place. For young adults or people who just never had a need to borrow money, trying to get their first credit card is going to result in a lot of denials. In short, establishing or re-establishing your credit depends on what type of credit you can be approved for and how well you maintain it.

Here’s a guide that will help you to qualify for the best credit cards with minimum approval requirements so you can establish yourself as a responsible borrower.

Secured credit cards and limitations

Normally, when you are approved for a credit card, you are outright given a credit limit. This is the total amount of money that you can spend without being penalised or charged over-the-limit fees, but there’s a catch. Each month there is a minimum credit card payment due. You also get charged interest on your total amount of purchases.

Secured credit cards require cardholders to send the issuer a deposit that is equivalent to their credit card limits. This protects the card issuer and helps you to establish credit at the same time. The best credit cards for people building credit are those that can shield you from falling into a pit of debt.

Why get department store credit cards?

One type of credit card for which you should pretty easily be approved is the kind offered by department stores. Continue Reading…

How to plan for a Victory Lap Retirement: Advice from the authors

By Richard Eisenberg, Work Editor, Next

Special to the Financial Independence Hub

Mike Drak and Jonathan Chevreau, authors of the new book, Victory Lap Retirement, are on a crusade to change the way society thinks about retirement. Their book is actually, as Drak says, “a retirement book about not retiring.”

A Victory Lap Retirement — Drak, 62, coined the term — means spending years combining work and leisure between the time you quit a full-time job and stop work entirely. In the book, the authors say a Victory Lap Retirement lets people change from a “surviving mentality” to a “thriving mentality.” The Toronto-based duo would know: They’re both taking Victory Laps right now.

Previously, Drak spent nearly 40 years working in commercial banking. He quit in 2014 to protect his health and personal well-being. Now, when he works, he  is a retirement coach, public speaker and writer (next up: a retirement transition guide). Chevreau, 64, is a veteran financial columnist, blogger and author of the book Findependence Day; I interviewed him for Next Avenue in 2013 about “findependence” — his term for having enough money so you can work because you want to, not because you have to. He still writes about personal finances, but on his schedule.

I recently spoke with Drak and Chevreau about how and why to have a Victory Lap Retirement. Highlights: Continue Reading…