While you should definitely take advantage of the one big exemption you do have—that you don’t have to pay capital gains taxes on your principal residence—most of the other dodges you hear about won’t work the way you hope. We’ve listed a few of them below, to save you the trouble:

Myth #1: I can avoid paying capital gains taxes by making my child a co-owner.
Nope. If you add a child’s name to the title for your cottage or home, the CRA views that event as a taxable disposition of 50% of your property at fair market value. The capital gains taxes on that portion are due right away, says Kathy Munro, a tax partner with PricewaterhouseCoopers in Toronto. When you and your spouse die, if you leave your portion of the cottage to your child, your estate will have to pay capital gains taxes on the remaining 50% then.

If you’re looking to buy a cottage, you could list your kids as joint owners right from the start, but that leads to complications too. For instance, if your child is under 18 at the time, the public trustee would have to act as the child’s agent, as minors can’t own property. “Believe me, it’s like opening up the jaws of hell,” says Barry Fish, a wills and estate lawyer with Fish & Associates in Richmond Hill, Ont. “You won’t be able to mortgage the property or sell it without the consent of the child’s government-appointed lawyer.”

If your child is an adult when you buy a cottage, it’s much simpler to include him as a co-owner from the start. But that too can be risky. If your son gets divorced, say, and he and his wife divide their property between them, she may claim half the value of your cottage. And remember, if your child’s name is on title as a joint owner, you can’t sell or mortgage the property without written consent from your child, so be nice to him.

Myth #2: I know there’s a $100,000 capital gains exemption. Where do I sign up?
You can’t. The $100,000 capital gains exemption was taken away in 1994. At that time, if you owned property other than your principal residence and you elected to increase the cost base of a second property, such as the family cottage, you could have triggered the $100,000 exemption. If you didn’t elect this option by 1994, it’s too late. However, if you are receiving property from your parents, always check to see if they applied for the exemption.

Myth #3: I’ll just give the cottage to my daughter. If there’s no sale, then there’s no taxes payable.
Unfortunately, the CRA found a way around that one too. It treats gifting as a deemed disposition of property on the day the cottage was gifted and capital gains taxes are due at that time. The CRA will assume the cottage was gifted at fair market value, to be determined by a tax or real estate valuator.

Myth #4: I can only declare my home as my principal residence.
Not true. As long as you lived in both your home in the city and your cottage in the country for at least a few weeks each year, you can elect either one as your principal residence. The key, though, is that you can only have one principal residence at a time. Thus, if your home had higher capital gains during the period from 1972 to 1985, and your cottage had higher capital gains during the period from 1986 to the present, you could claim your home as your principal residence during the earlier period and your cottage during the latter period to minimize your taxes. But the periods can’t overlap.

Myth #5: I can avoid probate charges by putting the cottage in trust for the kids.
Okay, this one isn’t a myth, it’s true—but, alas, unless you claim the cottage as your principal residence, you will still have to pay capital gains taxes. This is a real shame because probate fees, which range up to 1.5% of the value of the estate, are nothing compared to capital gains taxes, which can be as high as 47% of the taxable portion of the capital gain. So while you can avoid probate by setting up a trust, be careful that you don’t spend more on lawyers than you would actually save on the probate fees, which are often just a few thousand dollars.
]]> http://www.moneysense.ca/2010/11/24/top-5-tax-myths-about-leaving-property/feed/ 21 http://www.moneysense.ca/2007/04/24/retirement-made-easy/ http://www.moneysense.ca/2007/04/24/retirement-made-easy/#comments Tue, 24 Apr 2007 00:00:00 +0000 Barbara Hawkins http://20070424_132702_5868 Retirement is supposed to be the time of life when you put away your cares and worries, kick back and enjoy the wealth you’ve worked so hard to accumulate over the years. Well, maybe.

In fact, retirement for many of us is going to be an exercise in calculating odds and balancing one probability against another. Should we treat ourselves to that grand tour of Europe? Or deny ourselves because we may need the money years from now to pay for a nursing home? Should we invest aggressively to increase our chances of growing our nest egg? Or play it safe and take as few chances as possible?

These are anxiety-inducing questions and, ironically, you can blame that anxiety on the long, healthy lives we’re now living. Back in the 1920s, a newborn Canadian could expect to live for less than 65 years. Today, a baby born in Canada can expect to live to 80. So while our grandparents and great-grandparents didn’t spend a lot of time thinking about retirement—and with good reason!—we now have to budget and plan for 20 years or more of not working.

A lot can go wrong over a couple of decades. And even if you set things up perfectly for a nice 20-year retirement, fate has an odd sense of humor. After years of planning, you may die young—or live long, long past what you thought would be your expiry date.

One of the most common mistakes that people make in retirement planning is basing everything on the notion that they will live to what they believe to be the average life expectancy. You should remember that the average life expectancy is just the midpoint in a huge range of possibilities.

Among other things, bear in mind that the life expectancy figure you read in the newspaper is usually expressed in terms of what a newborn child can expect. The figure assumes there will be a steady number of deaths at every age along the way—a few people will die in childhood, a few others in adolescence, and so on. Those early deaths drag down the overall figure. So if you’ve dodged disease and accidents and made it all the way to 65, your life expectancy is considerably greater than the average for a newborn would suggest. Someone who is 65 today has a better than even chance of living to 85.

Remember, too, that the average life expectancy figures are just that: averages. Some people enjoy far fewer years; some enjoy many more. The average life expectancy for seniors may be 85, but that doesn’t mean you can ignore anything past 85. About half of seniors will live beyond that point— sometimes well beyond. The 30-year retirement is not uncommon and you have to be prepared for the possibility that you’ll be blowing out the candles on your 100th birthday.

The problem, from a financial perspective, is that there are no guarantees. Moshe Milevsky, associate professor of finance at York University in Toronto, points out that a 65-year-old man who retires today faces an 8% chance of dying before he turns 70. He also faces a nearly identical 8% chance of living past 95.

Think about the practical implications of those figures. Our 65-year-old man may expect to die relatively young. He may burn through his cash and treat himself to lots of expensive indulgences—only to find that, gosh, he’s a Methuselah who has to live the last quarter century of his life trying to make ends meet on a meager budget.

On the other hand, he could play it safe and pinch pennies to ensure he will have enough to last until he’s a centenarian. But, if so, he faces a real possibility of finding himself in a hospital bed at 68 or 69, listening to a doctor deliver a grim diagnosis, and cursing himself for not enjoying life more when he had the chance. The odds of disappointment are identical no matter which option our hypothetical 65-year-old chooses, so how does he—or you—make a choice? The following plan can help you make the most of the retirement odds.

Calculate your must-haves

You often hear retirement planning boiled down a single figure: “you need $1 million to retire well.” A smarter approach is to think of your retirement plans as consisting of two separate figures: one for things you must have, the other for things it would be nice to have.

The first and most important part of retirement planning is taking care of things you must have. You want to ensure you have enough to live on without feeling deprived of anything vital.

You can estimate your target figure by toting up how much you spend in all areas, then deducting the expenses that will disappear in retirement, i.e. no more mortgage payments (because the house will be paid off), no more child care or tuition payments (because the kids will be adults), no more retirement savings (because you will be retired). You should also deduct any luxuries you could live without in retirement, such as a second car. You can also subtract the cost of commuting to the office, work clothes, and so on.

The amount that’s left represents what it would cost you to maintain the essentials of your current lifestyle in retirement, and that figure is probably a lot lower than you think. Most middle-class couples arrive at a must-have figure of $30,000 to $40,000 in after-tax income.

Calculate your nice-to-haves

We all have dreams and you should budget for those, too. Maybe you want to take that African safari, golf every day, or winter down south. You should size up what it would take to pay for whatever bliss you desire and regard that figure as the second part of your retirement planning.

Just one tip: when assessing your nice-to-have list, remember that age takes its toll. Right now you may dream of traveling the globe. Once you’re past your early seventies, however, you’re likely to discover that your wanderlust is diminished. Similarly, you may find that golfing every day is no longer a pleasure once you’ve hit 75. So by all means budget for luxuries, but keep things within reason. You’re not likely to be globe-trotting for 30 years nor whacking iron shots to the green on your 95th birthday.

Count on government

Despite what the fear mongers would have you believe, Canada Pension Plan (which is funded by contributions from you and me) is in fine shape. Old Age Security (which is funded out of general government revenues) looks to be on solid ground, as well.

If you’ve worked in Canada all your life, you can expect to receive $11,000 to $16,000 a year from those two sources, depending upon what you made during your working years and how early you start collecting your pension cheques. A husband and wife who have both worked until retirement at 65 can expect $22,000 a year or more between the two of them. That money will keep pouring in as long as you live, with no particular planning required on your part.

You should compare what government will provide you with what you figure your minimum retirement needs will be. If you and your spouse figure you can maintain the must-have parts of your current life on, say, $33,000 a year, the good news is that retirement becomes a very affordable proposition. You may have to add only $11,000 a year in after-tax income from corporate pensions or savings to ensure the key components of your retirement plan.

Factor in pensions and RRSPs This brings us to the thorny issue of pensions. You may be fortunate enough, if you’re a public servant or work in the right industry, to be the recipient of a pension that guarantees you a “defined benefit” in retirement. If so, you can simply contact your employer’s human resources department to find out the size of the monthly retirement cheque you can expect.

If that amount is enough to bridge the gap between government stipends and your retirement needs, then congratulations! Your retirement planning is largely done. You may still want to contribute to an RRSP to finance luxuries, to provide you with a buffer against inflation, and to guard against the possibility that your employer will go bust and renege on its pension promises, but, in all probability, those RRSP contributions will simply increase your security, not determine your retirement lifestyle.

Most of us, though, aren’t in that position. Maybe you don’t have a pension plan. Or perhaps your employer’s pension plan is a “defined contribution plan” that only promises how much your employer will contribute each year you work, but leaves the actual investing up to you. Or maybe your employer’s defined benefit payouts aren’t enough to bridge the gap between government pensions and what you need. In any of those cases, you’re going to have to deal with uncertainty.

So get a handle on risk

This is where playing the odds becomes vital. Some retirees insist on playing it safe and keeping all their money in bonds and GICs. Others go for the gusto by betting on high-yield real estate investment trusts, penny stocks and small growth firms in hopes these high-risk, high-reward bets will provide them with the income they want.

Both approaches are flawed. Stashing everything in bonds and GICs raises the risk that inflation will whittle away the real value of your savings. On the other hand, betting on high-risk stocks or trusts raises the odds that you’ll make a big mistake and wipe out a chunk of your savings.

The best solution for nearly everyone is a well-diversified portfolio that has 30% to 50% of its assets in various fixed-income investments, such as bonds and GICs, and the remainder in a wide variety of stocks from Canada and other countries. One good approach to building such a portfolio is outlined in our article about couch potato investing.

No portfolio, though, can guarantee a given return. What makes retirement planning so difficult is that you’re drawing down your portfolio for living expenses at the same time as the markets are bobbing up and down. The first few years of your retirement are particularly crucial. If you have the bad luck to retire at just the moment that the markets head into a bear market plunge, your withdrawals combined with stock market losses could put a hole in your portfolio from which it will never recover. On the other hand, if you retire at the same moment the markets decide to go on a tear, the surging market returns may more than cover your early withdrawals. You may actually increase your net worth in retirement.

If you want to make your money last for 30 years, count on withdrawing no more than 4% of its initial value each year, adjusted for inflation. You should begin your retirement by withdrawing $4,000 a year for each $100,000 you start with. If inflation is running at 2% a year, you would withdraw $4,080 the next year, $4,162 the following year, and so on.

The 4% figure comes as a shock to many people, who assume that they can count on their portfolio for 10% or more in the way of annual payouts. To read more about the reasoning behind the smaller figure, refer to The 4% Solution below.

Balance the present and the future

Here’s where individual preferences become important. While a 4% withdrawal rate gives a well-balanced portfolio an excellent chance of surviving 30 years, it’s very much a pessimist’s strategy. Chances are that things will turn out better than the worst case. If they do, you stand a good chance of leaving behind a tidy fortune. Your heirs will no doubt like this arrangement and if you want to leave them a big bequest, that’s fine—but it’s probably not the optimal deal for you. In fact, if you apply the 4% withdrawal figure to your entire portfolio, you’re probably erring on the side of caution and living on less than you could in retirement.

A better idea is to treat the must-have and nice-to-have portions of your portfolio in different ways. When it comes to your must-have portion, play it safe and count on a 4% annual withdrawal rate. If you calculate, for instance, that you’re going to need to generate $16,000 a year on top of CPP and OAS to provide you with the necessities of your life, you should accumulate at least $400,000 in RRSP savings or the equivalent in corporate pension plans. That $400,000 should be able to fund an inflation-adjusted withdrawal rate of $16,000 for as long as you live.

If you don’t want to worry about the ups and downs of a portfolio, you can use some of your must-have savings to purchase an annuity that will provide you with a guaranteed payout for the rest of your life. Be sure to compare annuities from different companies to get the best possible deal. Look at all the different options available. Some annuities pay your heirs a lump sum if you die early; some are inflation-protected; some cover both you and your spouse. Seek the advice of a good fee-only financial planner before buying. Put particular emphasis on making sure that the insurance company that offers the annuity is as financially sound as possible. (Look for at least an AA rating from a rating firm such as A.M. Best. To learn more about these ratings, go to Ambest.com.) You may even want to split the annuity portion of your musthave money between two or more companies to ensure no single disaster can swallow up your savings.

Once you’ve built a fortress around the must-have component of your portfolio, you can treat the nice-to-have portion with more freedom. You can and should plan to run through a chunk of your nice-to-have budget in the early years of retirement, when you’re going to be most active. By the time you turn 75, your appetite for travel and other luxuries is likely to diminish and by the time you hit 85, many of your discretionary expenses will have dropped away completely. If your nice-to-have money is running low at that point, so be it. You will have extracted maximum value from your nice-to-have money when you were still healthy enough to enjoy it, while protecting your future by ensuring that your must-have needs are well covered. That’s the retirement we all want and it’s well within your reach.

The 4% Solution: More on making your money last

William Bengen, a financial planner in California, is the author of a long, but easy-to-understand explanation of how different withdrawal rates can affect your retirement. Originally published in the Journal of Financial Planning, “Determining withdrawal rates using historical data” is a classic in its field. His key finding? A 4% withdrawal rate is the most a truly long-term investor should consider. If you’re looking for a shorter take on the same subject, go to Scottburns.com and check out the “The Spender’s Portfolio and Portfolio Survival” section. The examples used are from the U.S., but the same math applies to Canada.

What did I think about that? How about: “Who left me off the invite list for the tax avoidance party?”

Most Canadians regard avoiding taxes as something between a duty and an obsession. Certainly I don’t want to be paying any more than I absolutely have to. Paying nothing at all sounds even better to me. But is getting out of your taxes really as easy as Dave made it seem? And if so, why isn’t everybody doing it?

One of the first people I talk to in search of an answer is Shy Kurtz, a tax-shelter promoter with Freedman, Kurtz & Kron Financial in Montreal. He stresses that he’s not trying to peddle anything that’s against the law. He draws a distinction between tax avoidance (where you take advantage of the rules to minimize your tax bill) and tax evasion (where you deliberately try to hide income or deceive the taxman). “Tax avoidance is perfectly legal,” he says. “Tax evasion, on the other hand, is not.”

There are two major strategies you can use to legally sidestep taxes. The first is to put your money into certain types of investments that government wants to encourage. Government deliberately equips these “tax-assisted investments” with generous tax breaks precisely because it wants to help them attract investors. The second way you can give the taxman the miss is to exploit loopholes in tax laws in order to earn outsized tax deductions. Manoeuvres like this are termed tax shelters. They’re the work of sharp-eyed lawyers and accountants who spot unexpected ways to legally beat the system set up by legislators and bureaucrats.

While the two types of tax avoidance are quite different, they both involve risk. Consider, for instance, the sad history of MURBs — a bureaucratic designation for Multiple Unit Residential Buildings, or what most of us would call apartment buildings. Back in the 1970s, Ottawa decided to encourage investment in this sector by allowing investors in new apartment buildings to claim their annual depreciation against other income for tax purposes. Promoters quickly took advantage of that offer and constructed leveraged deals that allowed MURB investors to put down as little as 10% of their total investment while giving them an immediate tax break almost as big as their initial cash outlay.

All of which was fine until the real estate market crashed in the late 1980s, vacancy rates soared and a lot of clever taxpayers found they couldn’t sell those lovely tax-assisted MURBs for love or money. The lesson? “The prospects of immediate tax savings blinded people to the economic reality of the underlying investment,” says Robert Brown, former CEO of PriceWaterhouse Canada, former head of the Canadian Tax Foundation and a long-time observer of the tax planning industry. “Investors weren’t thinking about the long-term implications.”

That lesson went unheeded in the 1990s when investors flocked to Labour-Sponsored Investment Funds (LSIFs). These are essentially mutual funds that invest in small start-up firms. Investing in such businesses has always been notoriously risky, so federal and provincial governments decided to offer tax credits worth 30% or more of your initial investment to encourage as many investors as possible to take the plunge.

Unfortunately, most labour funds have turned out to be dogs. Even the 10 best funds with a minimum five-year track record have lost an average of 1.2% a year, according to the fund tracker Morningstar. Many LSIFs have done far worse. Adding misery to discontent, those who invest in labour funds have to hold these poorly performing investments for a minimum of eight years or pay back all the tax credits they have already claimed.

The dismal track records of MURBs and LSIFs demonstrate that no tax advantage can compensate for a fundamentally lousy investment. “Any investment you make should stand up on its own investment merits,” says Adrian Mastracci, portfolio manager of KCM Wealth Management in Vancouver, a fee-only advisory service. “You should ask yourself: ‘Would I want to own this without the tax goodies?’ If not, you should move on.” That brings us to tax shelters. While government approves of tax-assisted investing, it’s no fan of tax shelters. These shelters are the work of tax planners who build their businesses on their ability to dream up clever shortcuts through the Income Tax Act. In doing so, they often incur the wrath of the Canada Revenue Agency, which wants to collect as much tax as it can and views fancy tax avoidance schemes with deep suspicion.

This battle of wits between the government’s revenue agency and tax planners is something akin to the spy vs. spy clashes of the KGB and MI5 during the Cold War: a fascinating struggle between unseen foes who are constantly challenging the rules. To keep track of all the tax shelters in operation, the Canada Revenue Agency requires that promoters register with the government. Anyone claiming a shelter tax reduction must include an assigned tax shelter number on their tax returns.

Hard-working minds are constantly dreaming up new kinds of tax shelters. Something known as the “Little Egypt Bump” took advantage of depreciation charges during mergers and raised eyebrows at the federal Auditor-General’s office as far back as 1986. Around the same time, other tax shelters packaged the tax credits that were doled out to encourage Canadian movie production and scientific research and resold them to investors looking for a break on their taxes. More recently “buy low, donate high” schemes bought art at low prices, then used questionable valuation techniques to donate it to charity in return for a tax receipt based upon values as much as three times the original purchase price.

The advantage of tax shelters like these is that they can’t wipe out your capital the way a tax-assisted investment can. On the other hand, you run the risk that the Canada Revenue Agency will decide your shelter runs afoul of the law and challenge it in tax court. In fact, all the above tax shelters — from the Little Egypt Bump to the film tax credit to the art flip — were shut down when the government took action to either clarify or change its laws. “The Canada Revenue Agency has become very aggressive about tax shelters, particularly those that have an underlying component of charitable donations,” says David W. Chodikoff, a tax litigation specialist at law firm Goodman and Carr in Toronto.

If your tax shelter is successfully challenged by the Canada Revenue Agency, you can lose your deduction for that year. You may also face a penalty, depending upon your involvement in choosing the shelter. And that’s not to mention the stress, says Chodikoff, who spent 15 years working for the federal government, trying to shut down questionable tax shelters, before entering private practice: “One of the biggest things I see, having been on both sides of the fence, is what I call the worry factor. It’s not just about the dollars and cents saved on your taxes, but about your mental health. A long and difficult reassessment can take years off your life and you really have to ask yourself: ‘Is it worth it?’” In shutting down the art flip shelters, for instance, the Canada Revenue Agency reassessed approximately 10,000 tax returns, creating massive headaches for the people who had taken advantage of those shelters.

So should you play the tax avoidance game? The answer depends upon how you define your terms. The most popular tax-avoidance tool is the humble Registered Retirement Savings Plan (RRSP). You should definitely take advantage of this tax dodge.

But tax avoidance doesn’t end there. If you’re a high-income earner who doesn’t mind rolling the dice in search of some tax-assisted investing, you may want to consider investing in flow-through shares, which are issued by some oil, gas and mining companies. A flow-through share gives the investor, rather than the originating company, the right to claim various tax deductions.

Consider an oil and gas company that issues $1 million in flow-through shares. It commits to using that money exclusively for exploration expenses, which gives it the right to deduct that amount from its corporate taxes. However, rather than use the deduction itself, the company passes it along to people who buy the flow-through shares. The shareholders can then write off the entire amount against their taxes, usually in the first two years.

Sounds good, doesn’t it? But there is a catch. Because the exploration company is giving up its right to the deductions, it tends to price its shares higher than a normal common share. This means the underlying investment can decline in value. For example, shares in the 2005 EnerVest Flow-Through Shares Limited Partnership, a mutual fund of flow-through shares popular with oil and gas investors, were sold to investors at $25 apiece. A year later they are worth only $14, a loss which offsets much of the tax saving. Bottom line: before you invest in any flow-through stock, do your homework to ensure that you’re buying a promising company as well as a promising tax write-off.

If you have the stomach for extreme tax avoidance, an innovation called gifted trust arrangements has replaced the nowbanned art flip deals as the tax shelter du jour. These shelters, such as the Donations for Canada program offered by ParkLane Financial of Burlington, Ont., use a mind-boggling series of trusts and sub-trusts and offshore firms located in exotic locales such as Bermuda to swell the original value of your donation. In 2005, its first full year of operation, the Donations for Canada program helped 6,000 taxpayers get $175 million in donation receipts.

It doesn’t take a tax lawyer to spot the attraction. The essence of the deal is that ParkLane’s parent company will quadruple the size of any charitable donation you make, thus boosting the size of your tax receipt. Depending on your province and tax bracket, a $1 donation can provide about $1.80 in tax credits. (This is how my friend Dave got his envy-inducing tax deduction.)

Yes, there are strings attached. To benefit from the donation, you select a charity — only a few are eligible — and that charity has to enter into a complex repayment agreement with ParkLane’s parent company. The result is that for every $2,500 in cash you donate, the charity gets a much smaller amount deposited in a hedge fund account. Over the next 20 years it receives 80% of the monthly profits from this leveraged sum. ParkLane’s parent company keeps the principal. While the program thus delivers less to charities, it could also give donors more than they bargained for.

“Certainly there are risks with our program,” admits Ron Olsthoorn, president of ParkLane. The biggest risk, of course, is that the Canada Revenue Agency may decide it is too good to be true, as it did with the art flip deals, and challenge it in tax court. However, Olsthoorn argues his scheme is fully protected against any possible objections from the taxman. “Since we are dealing only with cash donations, there are no valuation problems with our program and nothing for the Canada Revenue Agency to challenge. We think we’ve built a better mousetrap here,” he says. Just in case, Olsthoorn has set up a $500,000 legal defence fund that clients may access if the government does decide to test his plan in court.

While the revenue agency has not yet taken the Donations for Canada tax shelter to court, some tax experts expect it to be just a matter of time. Financial adviser Mastracci refuses to recommend the deal to his clients. “Anyone who puts their money into one of these charitable donation schemes is just asking CRA to put a red flag on their return,” he says. Jacqueline Couture, a spokesperson for Canada Revenue Agency, suggests as much: “It is our position that the 2003 legislation [which was used to shut down the art-flip deals] will apply to all types of donation arrangements to limit the allowable donation to the amount of the donor’s cash.” Donations for Canada participants recently got a terse letter from the Canada Revenue Agency saying the program was being investigated. If the government acts on this stated position, Olsthoorn may soon get a chance to put his legal defence fund to work. But for now, it is one of the more aggressive, and inventive, tax shelters available.

Despite the fact that a tax break would look pretty good on my next tax return, I’ll be steering clear of anything racier than an RRSP. I’m the conservative type, I guess. But after talking to countless taxpayers, tax lawyers and tax planners, I’ve learned one thing. Even if the Canada Revenue Agency bulldozes the Donations for Canada gambit, another dodge will quickly take its place. Like Hockey Night in Canada or a Tim Hortons coffee, a tax shelter seems like one of life’s necessities for many Canadians. Or as my friend Dave put it: “I pay plenty of taxes as it is. If I can find a way to legally save on them, I’ll take it.”

When less truly is more

Here are the key terms any tax-phobic Canadian needs to know.

Tax avoidance: this is the perfectly legal practice of trying to arrange
your affairs so that you pay the least tax possible. Do you contribute to an RRSP? Then you’re a tax avoider.

Tax evasion: this is the perfectly illegal practice of lying to the taxman or trying to hide some of your income. If caught, you face penalties ranging from a fine to a jail term.

Tax-assisted investment: these are investments that either Ottawa
or the provinces want to encourage, so government doles out tax breaks to people who put money into them. Labour-sponsored investment funds, which invest in small start-up companies, are one example of a tax-assisted investment.

Tax shelter: these are deals set up by private entrepreneurs who spot a loophole in
the tax system. They can offer a big tax break, but are often challenged by the taxman. One current example is what as known as gifted trust arrangements that swell the value of your donation to charity through a complicated series of manoeuvres.