peterr@utcsrgv.UUCP (Peter Rowley) (03/02/84)
A friend of mine told me that he borrowed money from the bank to buy a $2500 RRSP and then immediately sell it, transferring the income from the '83 tax year to the '84 tax year. This cost about $90. Why should the banks be allowed to make money this way, when it should be trivial to do this sort of ad hoc income averaging on the tax form? p. rowley, U. Toronto utcsrgv!peterr
dave@utcsrgv.UUCP (Dave Sherman) (03/02/84)
~| From: peterr@utcsrgv.UUCP (Peter Rowley)
~| A friend of mine told me that he borrowed money from the bank to buy a $2500
~| RRSP and then immediately sell it, transferring the income from the '83 tax
~| year to the '84 tax year. This cost about $90. Why should the banks be
~| allowed to make money this way, when it should be trivial to do this sort
~| of ad hoc income averaging on the tax form?
(For you non-Canadians, an RRSP is a Registered Retirement Savings Plan,
something like the American IRA.)
The RRSP isn't *designed* for averaging over two years in this way.
It happens to work that way because they've left it flexible enough
that you can contribute on Feb. 29/84, claim your deduction for
1983, and collapse it immediately with the income coming into 1984.
While your friend is perfectly in order to (mis)use the RRSP to
effect averaging (remember, the second letter in RRSP stands for
"retirement"!), he really shouldn't complain when it costs a little bit.
If the fees are too high, he shouldn't use it for other than what it was
designed for.
Anyway, "the banks" is rather a wide term, isn't it? Did your friend
shop around? My wife was considering doing the same thing, since her
1984 income will be lower than 1983 (after the baby comes). She phoned
all the banks and found that Toronto-Dominion had no fees for this
kind of transaction, although the RRSP had to be left open for a week.
(We ended up not doing this, since we could reduce our taxes to zero
with R&D shares instead.)
Dave Sherman
Toronto
utcsrgv!dave
--
{allegra,cornell,decvax,ihnp4,linus,utzoo}!utcsrgv!davehenry@utzoo.UUCP (Henry Spencer) (03/04/84)
Peter Rowley asks:
A friend of mine told me that he borrowed money from the bank to buy a $2500
RRSP and then immediately sell it, transferring the income from the '83 tax
year to the '84 tax year. This cost about $90. Why should the banks be
allowed to make money this way, when it should be trivial to do this sort
of ad hoc income averaging on the tax form?
Yes, it would be fairer in one sense if you could do this sort of thing
on your tax form. But taxes are not *meant* to be fair. The objective
of taxation is to extract maximum revenue while minimizing the protests
from the peons and the special-interest groups. Fairness is not at all
relevant, except insofar as the *appearance* of fairness can deflect
some of the outrage from the victims. You are confusing taxation with
normal business transactions, which are (more or less, roughly speaking)
entered into voluntarily and intended to benefit both parties. Taxation
is a legalized version of armed robbery, and should be understood as such.
You can't do this sort of averaging because it would result in you paying
less tax; no other reason is necessary. The roundabout route through the
RRSP is probably accidental and will probably be blocked sooner or later.
As to why the banks should be allowed to make money on this: they are
doing you a service, are they not? Surely you don't expect them to do it
for free. If bank management started acting like philanthropists instead
of profit-oriented money-grubbers, the bank stockholders would fire them
and install people who know what their job is. (To wit, making money for
the stockholders -- that's the way business works, folks. No profits,
no stockholders. No stockholders, no capital. No capital, *no bank*.)
--
Henry Spencer @ U of Toronto Zoology
{allegra,ihnp4,linus,decvax}!utzoo!henrydave@utcsrgv.UUCP (Dave Sherman) (03/04/84)
Henry Spencer says:
"The roundabout route through the RRSP is probably accidental and will
probably be blocked sooner or later."
It's only sort of accidental, and I doubt it will be blocked as long as
RRSP's stay in the system. Although the RRSP is deisgned for *retirement*,
some exceptions have to be allowed for disabilities and the like. In the
case of RRSP's, the entire plan is taxable in the year in which you
collapse it. Therefore, the implicit "disability" exception is that you
can (profitably) collapse your RRSP in a year in which you have lower
income and are thus paying tax at a lower marginal rate. Presumably, if
you are making less this year than in a previous year, you do have more
need of the money. (I'm speaking in general terms, of course; there are
lots of situations where this doesn't actually apply.)
Dave Sherman
Toronto
--
{allegra,cornell,decvax,ihnp4,linus,utzoo}!utcsrgv!dave