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Sleep-Easy Tax Savings Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes — Judge Learned Hand Years ago, when our children were young, we took them on a vacation in France. One morning we drove our rented Peugeot to a nearby village in Brittany, where we bought some freshly baked bread at the local boulangerie. As we drove home, the smell of the bread, which was still hot from the oven, filled the car with a delicious aroma. The kids in the back seat were unusually quiet, but we didn’t think much of it. When we got back to the farmhouse, my wife retrieved the bread bag and found herself staring in amazement at a forlorn heel. The rest had been devoured by the kids during the drive. The smell had driven them into a feeding frenzy!
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The moral of the story is that it doesn’t matter how much bread you have when you leave the bakery. What counts is how much remains when you get home. The same is true of your money. Too many people focus on total return, when all that really matters is how much you have to spend once the taxman has eaten his share. As Judge Learned Hand, one of America’s greatest jurists, stated in the quote that opens this chapter, there is nothing unpatriotic about arranging your financial life in a way that will keep your taxes at an absolute minimum. However, there is a certain irony in Judge Hand’s comment in that it formed part of a ruling against a taxpayer named Evelyn Gregory who in 1928 had used a complex corporate reorganization to reduce her personal income for tax purposes by $10,000. The judge’s landmark ruling against Mrs. Gregory was later upheld by the U.S. Supreme Court, which said in its own ruling that the entire manoeuvre, while legal on the face of it, was “a contrivance” and a “devious form of conveyance masquerading as a corporate reorganization.” So perhaps to Judge Hand’s comment we should add, “As long you don’t push the envelope too far.” That’s the real message you need to remember if you want to keep the tax people from haunting your dreams. Unfortunately, human nature being what it is, smart promoters are constantly coming up with new schemes for beating the Canada Revenue Agency (CRA). In most cases, the people who get sucked into these deals end up in a pile of trouble. | |||