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3 Little Known Financial Tricks for Smart BC Investors

by Sam Perren

796 words (3 minute read)

Originally Published: 2019-01-25

 
sam

 

Simple moves in life often make a big difference.  The fruits of small cumulative efforts are massive: eating right; exercising every day; and even small financial moves can make life meaningfully better.  Wealthy people know about these moves because they can effort to pay experts to help them arrange their affairs, and the money spent on expert advice is well worth it!  Here are 3 little known moves you can implement in 2019 to make your life better. 

 

1. The Sweep

I met a very smart guy named Eric last weekend. After admiring the lunar eclipse together (he explained in detail why it had a red hue and is called a "blood moon") at the "afterglow reception" of the conference we both attended, we had a late dinner. Over conversation he explained a simple trick to save hundreds of thousands of dollars on mortgage debt, without adding any extra money to the system!  You use the bank's margin against itself by using a line of credit to "sweep" your income against your mortgage, and the daily interest costs of using the line of credit are dwarfed by the savings on your mortgage. 

I didn't think it would work until I put the idea into a spreadsheet, and in my example there is a savings of over $180,000. I've included the excel file here so you can download it and try it out for yourself.

 

 

2. Cashback RSP

Someone I'm working with named Miika shared with me a way to invest registered funds and get 30% cash back as a tax credit. He calls it a "cashback RSP."  Here is how it works, courtesy an article by Pushor Mitchell LLP: 
Under a relatively little known provincial investment capital program, B.C. resident investors can get a tax refund for 30% of the amount of their investment.  Here’s how it works:

  • The company that will receive the investment first submits a simple application for registration to the provincial Investment Capital Branch as an “Eligible Business Corporation” (“EBC”) under the Small Business Venture Capital Act (BC) and obtains an allocation from the annual tax credit budget.

  • The EBC must (i) have no more than 100 employees, (ii) pay at least 75% of its wages to BC residents (50% if the EBC exports it goods or services), (iii) have previously raised at least $25,000 in equity capital (e.g. cash for shares) and (iv) be engaged in a prescribed business activity.

  • etc...

Read the entire article explaining this program here.

 

3. Creating TFSA Room

If you're expecting a quick gain on an investment, it might be better to put the money you plan to invest into your Tax Free Savings Account first. This will increase your TFSA limit, and with a large enough limit you can have substantial tax free income.  The TFSA contribution limit for 2019 is $6,000, up from $5,500 in 2018. With the TFSA limit at $6,000 for next year, the total room available in 2019 for someone who has never contributed and has been eligible for the TFSA since its introduction in 2009 is $63,500.

Example:
If you have never before used your TFSA, and want to invest in a mortgage at 10% interest (my friend builder Joe has a project where you can earn 10% in 12 months), here is what would happen if you moved the cash into your TFSA first:

Date

Balance

Interest Paid (10% every 12 month)

01-Jul-19 

63,500

 

01-Jul-20 

69850

6350

01-Jul-21

76835

6985

01-Jul-22

84518.5

7683.5

01-Jul-23 

92970.35

8451.85

01-Jul-24

102267.385

9297.035

01-Jul-25 

112494.1235

10226.7385

01-Jul-26 

123743.53585

11249.41235

01-Jul-27 

136117.889435

12374.353585

After 8 years, you would have grown your savings enough to earn $1000/mo tax free.  You could then use the proceeds to earn income, or continue to snowball the value if you don't yet need the income. 

You should ensure you are using your TFSA according to the rules (same as any registered funds), which means engaging a trust company, and only investing in eligible investments such at mortgages or stocks. 


Take one of these tips, implement it, and watch your wealth grow!

Happy investing!

 

About the author: Sam Perren has helped dozens of investment partners acquire real estate, representing over $16Million CAD in purchases with rental income of over $100,000/mo. If you'd like access to Sam's "deal of the week" please click here.  To ask real estate related questions (or any other), click here.

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