127. 5 Ways To Reduce Taxes In Canada And Protect Your Wealth

You are listening to the Wealth Without Bay Street Podcast, a Canadian guide to building dependable wealth. Join your hosts, Richard Canfield and Jason Lowe, as they unlock the secrets to creating financial peace of mind in an uncertain world. Discover the strategies and mindsets to a financial future that you can bank on. I'm super happy to be here with you today. It's a beautiful Friday, at least in my area. I'm sure it's probably nice. We've got a nice heat wave, I think, going on in the Toronto area, hasn't it?

It's extremely hot, man.

Yeah. Well, we've got our first real heat wave happening here in Chilliwack that's about to start, so I'm excited for that. It's actually my, my wife's birthday next week, so it's good to have some nice weather. She'll, she's very pleased that that's going to take place. But we're not, we're not here to talk about the weather. We're here to talk a little bit about, you know, I wanted to just engage with people on a webinar that you did recently for Ascendant on, you know, how to, how to separate yourself a little bit from two different systems. So system one being the banking system, system two being the tax system. A little bit something that you're very knowledgeable and familiar with. And I know that that session was extremely popular. There was a lot of people who attended. Sound like you had really good engagement comments going on. There were, were five critical things that you kind of shared with people during that, that whole session. And I thought it would be good to revisit those today on our discussion. And specifically, I'm talking about the five Ds that you. To have a tech, a tactical method to, you know, kind of separate yourself from these systems a little bit. So, you know, maybe just in general broad terms, maybe would you mind sharing with everyone what these 5Ds are? And you know, we can pick any one of them just to dissect and speak about a little bit more for a conversation today. How does that sound?

Yeah, no, this sounds good. I think I should, I should trademark that terminology since I think when we kind of look at everything what a lot of people mean. I'm not sure if people have the same viewpoint or perspective that I always look at. So I look at things from a system point of view, which is a collection of activities and, you know, like, we know about the income tax, like we know we have to pay income taxes, but Canadians may not realize that the Canadian tax system. It's a system designed for the government to collect those taxes. So when we look at, if we look at the architecture and the framework, just like a house, when you look at, you know, the framing and everything, how the interior design of a house is organized, you know, some people like to have a big open space, some people want to have compartmentalized rooms. So when you know, at least in general speak how the system is designed, then you at least have. Then you know, with the framework that I will share with everyone is how you can navigate that system to know where you want to be. Do you want to be in the living room or do you want to be in the kitchen? Is know, kind of a very different thing.

Yeah, yeah, you can, you can, you, you can relax in the living room and you gotta, you gotta chop vegetables in the kitchen. I mean, really.

And you're around hot, hot flames and everything too.

That's right.

Yeah. So that, that's kind of where, you know, if we just take a look at the overall essence of the income tax system, the system is designed to tax people for who earn more income. So it's a progressive system. So if you earn more income. So opposite to progressive is regressive. So if you earn more income, the key definition of how taxes get latched on is income. So once you know what the activity or effort you're doing is based on income, then the more you earn for that, then the more you end, the more they latch onto you, and it becomes even more penalizing because the rates become much more aggressive as you fall into these brackets and buckets. So there's that progressive system. And when you know that it's based on a progressive system, then you can design strategies to be away. You want to design things to be away or outside of how the system is designed.

Yeah. There's a point in Canada where in certain provinces, when you get to a certain level, every dollar that you basically earn as an income, 50% of that dollar, sometimes 53% of that dollar, is immediately basically getting paid into the federal coffers because you don't get to retain it. So for every dollar you, you make, once you cross a certain level, 50% of that dollar, $0.50 or more of it goes directly to the Canadian government. You can't, you can't use that for anything in your own household purposes.

Yeah, no, absolutely. And actually, where we are today, in terms of the average Canadian family, so the average Canadian family earns $100,000. Okay. So whether or not that's a lot or A little. That's not the kind of point of the discussion. But there was a research study done by the Fraser Research Institute, and they collected Canadian information from that research study and, you know, pinned down that the average salary is around a hundred thousand dollars and 36,400. So 36.4% goes to taxes. Okay. Then the amount of money that you need to live is 35%, which is less than the amount of taxes you're paying. So 35, 35,000 is to the family for you to live, to survive. You know, food and, you know, electricity, all that stuff. More of that is going to pay for some the government's services. And so that's just the first, you know, basis of the problem. The second one is now if we go to the income level, so generally, let's say it's around 90,000, if you get a bonus of 90, 10%. So a very popular compensation structure that people have is 10% of salary, your compensation. Now, if you get 10% bonus, but you're at the $90,000 mark, your increase is 9,000. Right. So 10%, but the amount of taxes you pay is like 12 or 14% extra because of the marginal tax rate. So once you're at that tax level, any incremental dollar that you earn on top that you are paying, because again, it's a progressive system, you're paying more taxes in the percentage. You're not paying like some flat 30% tax. You're like paying 40% tax. And you know, that's, that's more in terms of a, the increase in rate of tax you're paying is much more than, you know, the dollar value or earned. So it's, it's pretty painful.

Yeah, and it's, it's a bit nebulous in that It's, I think it's really, it can be difficult or confusing because it's, it's almost like a bit of a smoke and mirror situation because there's so many different little rules and the progressive rates and we hear about a marginal rate and then there's a provincial this and there's a federal that, and then, you know, so a lot of times I think people, they know that we pay a lot of tax, but they're not necessarily clear when and how it's showing up for them because they don't necessarily know where those, those tax brackets live. And it's not something that we're like, trained on. I know I didn't get a course in taxation when I was in high school. I'm sure Anybody watching didn't receive that, unfortunately. I, I like, I'm really glad that we have you here, Henry. We can have this conversation because you've done all that training and in fact, you help other people get through that TR. And you know, I'm just like, my God, I don't. I would have no interest in ever doing that. So instead I just want to go find Henry so he can explain it to me. And I'm very grateful that we, we have you to kind of do that. So the more we have understanding in, in Canada of how, how this shows up in our life, how it's actually happening for you, the more awareness you have about little subtle things you can do to, to make improvements come along, your, your taxable situation as a household, the more dollars that you have available for you and your family to control and work with, not just this year, but in every year thereafter. And so, you know, I think the purpose of your webinar was tell people discover what are some ways that, that that can happen, that can show up for people or what. What are steps that they could begin initiating to, to start creating more separation on their income and the taxes that they eventually pay. So that leads us, I think, to the 5D. So why don't you maybe, you know, like, I would do a drum roll or whatever, but just kind of unveil for everybody what, what those 5Ds are, and then maybe we'll, we'll. We can discuss them a little bit from there.

Yeah, actually, before the 5Ds, there's actually education and the willingness. I mean, if you can. Either the willingness will come either from just the frustration that you face or, you know, your desire to achieve your, your goals and objectives. Some people don't have that, you know, drive or that frustration. They don't hit that point. So that, that depends. But definitely having that is definitely enough for you to take action. But yeah, the education is important. And, you know, you kind of talked about you didn't get it in high school. I don't think anybody does. If you, you know, the, the things that I've learned growing up is if there's certain things that need attention, that's probably where the education was missing. And this is probably one of those. But yeah, no, the five Ds, kind of going down to it, there's, there's some popular saying around. You know, they use some Ds or acronyms for it and they, they don't get to the sign of kind of framework that I have. But I, I use five just, you know, because that kind of covers a big majority of it. And when you are learning about it or know about it, it's not like you mentioned, the tax act is so complicated and all those rules and nuances and all these things, that's not what you want to dive and focus your attention on but more of just directional paths that you can, can see. And again once you know how the architecture of the system, which is a progressive system, that's what you have to be kind of looking at. So the first one is called you're just using time for your advantage. When you look at time, if you get suddenly a large chunk of income as it's labeled you, if you can spread, if you get let's say $1 million, if you get $1 million spread over 10 years, you're not paying as much taxes all over that 10 year time because you're not in that higher tax bracket to then concentrate the taxes and the over penalizing higher tax rates as you move up the brackets. Whereas if you receive that $1 million all at once, that's really painful. You're going to pay, you know, over, you know, over 50% of taxes on that. That's 500 and something thousand. Right. So that's not good.

So for anyone who's expecting to win big on the lottery, basically the, the lottery you didn't just win, you also won that lottery for the.

So yeah, you want like when you get the concentration at once the logical strategic advantages spread it, use time. So I always think of things also as variables. Think of time. How can I spread that over time? Now you don't always get to control that time or control how that comes in, but you also have to think about how you put that money in that exposure, whether or not you put it into that control. So an example is let's say if you use an RRSP, a lot of people think of RRSPs for retirement, but there's some strategic advantages to use an RRSP as a tax planning tool, a short term tax planning tool, not, not, not in my perspective for wealth building. But if you put money into an rsp, you get a short term refund based on today's rates and you can control how you want to melt it back into your income. But some people forget about it. So that there's also of course that that drawback of when you put it into prison for a bit and you want to take it out, you can introduce it at a lower income provided every other surroundings of your life is, can be controlled so that you can Specifically isolate and focus on melting that money back into, you know, your, your own personal self, therefore paying a little bit less taxes by doing that. So again, if you chunk that whole 1 million into an RSP as an example, assuming you have the contribution room to get out bit by bit, that that's probably a more better strategic way of doing it.

And just to speak on that. So again, myself not being a tax professional, but just looking at it from a logical standpoint, the premise or what we're, what we've been told or trained or has been promoted to us as Canadian population is that that's the best vehicle since sliced bread for us to be, quote, unquote, saving our money for our future. But the whole premise being, oh, okay, I'm going to go put money in here and then eventually I'm going to be able to take it out and I'll be in a lower tax bracket. That's what everyone says and a lot of accounting professionals, not that they're saying anything bad or negative, that that is what, how kind of how they're trained to do that to some degree. And so the whole premise hinges now on the fact that you will be in a lower tax bracket. A lot of people are finding that now they're, they're entering a retirement phase, they're going to have to start drawing down these funds. That is actually not the case. They're not in a position where in a lower tax bracket because the tax rates and the tax brackets have increased since they started that, that platform and then additionally they actually have more income than, than they expected. And now because they have to, they're forced to take that money out. It's actually reducing or clawing back some of the other governing government benefits like old age security that they would be entitled to. So, so it's, in other words, it is a great deferral option. However, the key is understanding, you know, having a little bit of a reasonable projection into your future. When is that point in time where you're going to have that lower tax income? You gave a great example in your webinar about a gentleman who, you know, switched himself from working for another company to or you know, working in a situation where they're self employed, I think to then being incorporated, not needing to take all the money out of the corporation so they could instead start actually melting down, as you say, or withdrawing money out of that registered account where they were technically in a, in a zero income position. Well, if you're earning quote unquote zero income, you couldn't be in a lower tax bracket. Right. So that now the income that he was choosing to earn was out of that RSP as he's taking out strategically to maximize the benefit of past deferrals into a timeframe where he could control his taxable income on an annual basis. And so again, ultra strategic, not something that's an option for all parties. So just be aware. Deferral is an amazing option, but you have to understand, you know, you can't lose sight of what Henry said. You, we tend to forget things later on in life. You can't lose sight of the fact that tax is always there. The thing that we're waiting for is what's the tax calculation. And if your income doesn't line up with that tax calculation at that date, you're still in a tricky spot. You know, you could in theory actually end up paying with a registered account, maybe even more tax in the long run if it's not managed really well. So I don't know if I said anything incorrect, Henry, maybe just, you know, check in with you on that.

But yeah, no, I'll just add when you defer, you're changing and you're adding an element of uncertainty, which is the future income tax rate. If you are not deferring, you are, you know what the tax is going to be. The very big assumption that professionals will say is put it in an rsp, you'll be in a lower income bracket in the future. But you're missing also the context of when you're in that retirement stage and depending on the government's income. Well, your RRSP is from the government system and then you're also getting pension income from the government. They're going to control how much they want to spend for you, not for themselves when they spend money, but when they spend money for you and how much you are entitled to because you know they're going to control how much. And so you mentioned like those government, the old age security clawback, guaranteed income supplement that gets clawback. Those, those if you actually look at it as that these were entitlements you were supposed to get, that's another form of tax that you're getting. And seniors actually pay the most taxes. You know, it's just labeled in a different way, but it's the most taxes of any citizen generation from, from, from how it happens. And this, you know, this still, it still grinds my gears when, when I, when I say that. But anyway, that's a separate thing.

So, so before Henry goes on a rant on, on the deferral item. Let's, let's slide into D number two for our listeners.

The D. So I'll kind of, you know, I, I usually have a sequence but the, the other one that you mentioned in my webinar was design. So my client Chris, he was a self employed individual. So as, as individuals you, there's in the income tax system there's ways to get taxed. First is as an individual, then it's as a corporation or business. And then there's also other things like trusts and stuff like that. Well, how you design yourself will also implicate the amount of taxes that you pay. So logically the tax system is designed primarily to focus a lot on Canadian citizens. If you think of it, there's 38 million Canadian citizens. 30 million. So it gives a great base for the government to tax now that the system is optimized for those citizens. Now if you kind of have a different arrangement of earning income which is let's say as a self employed individual and you have expenses. So then tax code, they allow you to apply the cost that you take to earn that income. So that can bring down your income even though you're going to spend it anyways. Right? So you can bring down your income lower tax bracket, lower tax amounts that you have to pay. But the next step is if you can meet the criteria to be under a corporate structure. Corporations now are taxed at an even more favorable rate. So instead of let's say 50%, the individual's paying 12%. And you have a huge margin of tax dollar savings just from the rate because of the design of how you receive the income. So instead of receiving the income individually, personally, you receive the income in the form to your corporation. Now of course your money is trapped in the corporation. There's ways to take it out and all that stuff that you know, I talk about. But in general how you receive that income now is another form of ways to manage your, your tax bill that.

You would pay, defer and design. And in that, in that part of design is, you know, trying to shift yourself from the, the individual T4 and self employed style of income to, to a corporate structure where you have certain measures of control. Now obviously you set up a corporation, there are costs associated with the setup and the annual maintenance of that. All those things need to be factored in. And for a lot of Canadian, you know, and individuals, it's not really feasible for them to make that design choice. Not at this stage. But if you know, again back to education, if you know that that could potentially be the most beneficial method for you from a taxable perspective. Your brain starts to now maybe try to figure out how that may become possible. You might say, taking yourself down the direction of this is something I want to do. So what I'm either going to set up a business or I'm going to find a way with my existing, you know, employer. Maybe I can contract to them in some format. So it starts to open up doorways because we're, you know, all we're doing here with our, our session and our, our talk today is we're trying to get the pathways, you know, freely moving with those electrons in your brain to start giving you some new ways of thinking about how tax is running through your life a little bit.

Yeah. Instead of just thinking this is the only way, it's kind of narrow you, I'm just trying to expand your mind to say, hey, there's actually a possibility. Whether or not you fit into that possibility is a different thing. That's where you definitely need to engage a professional to properly assess your circumstance. And like, like you mentioned, not every Canadian has the ability to not change their design. Right. So least efficient as a T4 employee. More, more efficient is if you receive the income in the form of a corporation. Not everybody can, can do that. I mean there's a lot of high salaried individuals and they're just salaried. And that, that's unfortunate. But there's another, you know, like in my, my client example, Chris, he was a self employed, he had contracts in multiple places. And when I asked him the question, why have you ever had a discussion to incorporate your income? He's like, oh, it's, you know, it's so much work. I've got to be, I've got to have a bookkeeping in place. I've got to have pay more taxes to file it. And then, you know, we work together and I kind of showed him really quickly, here's how much it's going to cost you to maintain your corporation and to set it up in the first place compared to what you're paying in taxes today. He's like, okay, I'm going to start that next year.

Yeah, pretty, pretty amazing the difference. And so we've talked about design and then where does that lead us next? What's the next thing that Canadians need to be looking at?

Then there's something called defining your income. So when you define your income, there's kind of, and again, I'm just trying to keep it really simple. There's employment, income as a T4 and there's a progressive bracket schedule that goes with that. Then there's business income. So I'll just kind of, instead of mixing in structure involved, I'll just say self employed income. Like let's say you are a contractor with, I'll just, you know, with some driving company or some like food delivery company or other, other forms of contracting that you do. So that's business income you, you need. You also incur costs to earn that income. So that kind of falls in the middle category. Then there's the most efficient kind, which is capital gains and dividends. Dividend income. There's three categories for a dividend which is eligible dividends. These are dividends that come from high earning corporations that pay the most taxes, pay higher amounts of taxes and then they distribute that income as dividends so they get a larger tax benefit from that and then that also transfers to the individual Canadian. Now, you know, unless you invest in public companies that pay dividends, I don't think many public companies generally pay a very, you know, material enough dividend for me at least. Right. But those dividends typically give a great tax credit to therefore bring down the amount of taxes you pay. Then there's ineligible dividends. These are typically the dividends will come from a lot of small businesses. So small businesses, especially if they earn income less than 500,000 and they pay dividends, that's going to be what triggers what's called ineligible dividends. So that's the definition for an ineligible dividend. So those are still favorable tax rates, but obviously compared to the ineligible, it's different. And then lastly there's something called capital dividends. And capital dividends are unique to specifically Canadian corporations. And it has to be held specifically, and it has to be held specifically by a Canadian citizen. Now if you have other citizenships, let's say a like us you are, if you own U.S. citizenship, you are by virtue taxed as a U.S. citizen. You will not get this benefit from it. So capital dividends are for Canadian citizens only. And they come into the corporation in the form of when you have something where you sell, let's say you sell land that you bought at a hundred thousand and the land was 500,000, a $400,000 capital gain, that amount goes into a capital dividend account. So that's the first way capital dividends increase. The second way capital dividends increase is through life insurance proceeds. And when that money goes into the capital dividend, that money can exit the company completely tax free. And just in general from in the whole professional world from how long I've been involved, I don't think there is enough emphasis of how much power this can really give the individual Canadians, business owners and that circumstance to really set things up from their own personal standpoint. And intergenerationally we, I do a lot of, not to brag, a lot of amazing work to help set up ways for the generations afterwards to have tax free income for a very, very long duration of time. So that's what capital dividends are, are. And then the last one is what's called capital gains. Capital gains right now are taxed at 50% and people are aware of those if they're in doing real estate or some form of that. And there, there's a bit of a definition between what's a capital gain? If, if it's not frequent in nature that you do, then it would be considered capital gain. So capital gains are taxed at 50%. So if you kind of balance it within all of that spectrum, dividend income and capital gains are very close. But that's the source around where you want to be. Now if it's structured into a corporation, those don't get taxed as favorable versus active business income. So there's a little bit more complexity. But yeah, in short, how you define the income and how you receive that income is going to set how you get taxed on that income.

Yeah, really important. And I just want to touch a word on capital gains because I found that sometimes there's some miss especially for people who are maybe new to Canada or newer citizens or you know, have immigrated here from another place. Sometimes there can be some, some misunderstanding of that because we say it's taxed at 50%. But really what you mean is, you know, quick example, you, you sell a piece of real estate and it was, you know, your gain on that piece of real estate was a million dollars, you know, because you took advantage of the giant real estate boom that happened over the last, you know, six years in Toronto, let's just say. So you, so you, you bought it for, you know, $500,000 and you sold it for 1.5 million. So the gain is that million dollars. So what, what Henry's saying is that the capital gain, 50% of that you receive tax free and only 50% of that total gain is now added to your taxable income. And once it's added to your taxable income, it's going to go through that same progressive tax structure that you identified earlier. So the actual tax amount you pay could still be very high. But 50% of what you received is that gain you do receive tax free. So that's what the 50% means. Doesn't mean you're going to pay 50% tax on your gain. It means that you have to take 50% of what is the gain and include that in a taxable income in that taxable year.

That's correct. So, and I'll just kind of maybe add another layer for relatabilities. If I earn $100,000 and I made a million dollars on my real estate sale, 500,000, 50% is going to get included in my income. So my income calculation for that year is going to be 600,000. And again, that, that's, that's where things get a little bit complicated. But just giving that, that explanation of how your basis of taxation comes in on that income.

Yeah, Love it. Awesome. So that, that leads us, I think, where we're stepping into number four.

Number four is dividing the income. So there. So if we kind of go back to concentration of the income first. I kind of talked about deferring the income, which is essentially dividing it over time. But this one is dividing it amongst, I'll call it legal taxable entities. So you tax, you kind of try to divide it amongst people like your spouse or your children or your cousins or your corporation or however much. So using Chris as an example, he created two legal entities for him to get tax at. You know, from our discussion, it's better to have all of the income flow into his corporation. To get the 12%. He could very much split the two and do 50% to himself and 50% to his corporation, and that's his choice. However, that's an example of dividing it. Another way of dividing it is especially a lot of, I'll call it professional corporations, like IT consultants or project management consultants. They have their own corporation in that standpoint. And what's a good structure for them to set up is to have shares between themselves and their spouse. So when they pay a dividend, instead of if they, if, sorry, if Henry owns that corporation 100% and we need $60,000 to live, just kind of throwing a number out there, I would rep it. So if I took that out as in the form of dividend, I would pay a higher tax because I'm in a higher tax bracket and all that stuff. But because by virtue of the position that I'm in, I can set up 50% owned by my wife, 50% owned by me, and I can still get the same 30,000. But now, sorry, 60,000, but now it's split between my wife and myself. And now we have a low, a much lower tax bracket that we need to pay because it's that 60 we still as a family receive. 60,000 is just distributed in a different way. So that's again another way of dividing the income so that you don't fall into the progressive trap to pay more taxes.

Now, something that's really important about this piece and I want to speak on, which leads us into the fifth D, which I really want to talk about. And that's in this situation, what you just described there. Okay, you know, you're taking 30, your wife's taking 30. On paper, your income is much lower as an individual basis. So where this. So the good news is you get to have a little bit more control over your taxable environment in that given year. The, the, the counterpoint or the potential problem with that that can exist especially for people is if you do need to now seek financing, you need to go get a mortgage, or you need to go and get a loan for your business, or there's something that you need financing for to help whatever, maybe you're buying a rental property. It can be much more difficult for you to qualify for that because the, the plain vanilla lending institutions, they need to show demonstrated income. They want to see that, that, you know, notice of assessment. They want to see what was your income for the last couple years. Oh, well, we pay ourselves basically nothing. Right. That's not a good basis for you to go and go and get financing from a third party lender. So, so you're, everything is in a given and take, right? So for every time that you get some advantage, there's something else on the other side that you might be, you might be giving up. And it's just a matter of what's more important to you and where do you have that measure of control. And I think that dovetails and kind of leads us directly into the 50 that you can maybe share with everyone.

Yeah, just before I kind of dive in. So it all depends on everybody's life stage too. And you know, today people are a lot more creative, even though, you know, traditionally in the old banking model, when you're trying to get a mortgage from a bank, they only looked at salary, but now they're a lot more receptive to other forms of income that you're receiving. So dividends still qualifies, provided you're working with the right people. Again, these are, these are those nuances where you definitely speak with a professional to really help you need that experience to calibrate things down. It's not something. It's like, it's not one thing that you just get on some marketing, you know, channel, and you're good. Yeah. So now the, the fifth D. Oh, and just to kind of add on that, divide the income. So the, the wonderful liberal, Liberal government introduced some legislation in 2017. It's called the tax on split income or the TOSI. And they've put a lot of more red tape around how you split them. So again, that's where, again, the professional who knows what they're doing, who has experience doing what they're doing, will know how to navigate that, that type of legislation.

So in other words, don't just take the last, like five minutes of discussion and then go and try to file your taxes this year. When you watch this video around tax time and oh, so all I got to do is take this amount of dividends, like that's how we're making a suggestion. Or the suggestion is Dr. A professional. But be aware, these kind of things might work relative to, you know, again, tax rules are always changing, etcetera, etcetera.

So.

Whatever.

Numerous disclaimers into this conversation as we.

Passed it on the whole thing. Yeah, whatever applied in 2016 doesn't apply in 2017 because of those legislations that came in. And very, very similar, every time they issue new budget pronouncements, responsible professionals like myself will be looking at them. But yeah, so on, on the fifth D, this is where. So the fifth D is called disconnect. Now, disconnect is becoming a lot harder, but a lot of people don't know that this exists. And actually this kind of ties into my own journey of this, of discovering this. So I knew from a cultural standpoint, which I won't share, but I. But I didn't know how I could flourish or enhance it in this way. And so one of those examples is, again, if we look at the income tax system, how everything is defined is by income. And when you work on that income, whatever is remaining or whatever you're saving has to go somewhere. You don't just put it under your mattress. You don't just, you know, I don't know, lock it away in something else. Like.

It gets reintroduced back into the actual income tax system. So what most people are familiar with is putting their money into things like stocks or real estate or commodities or whatever financial products under people are. There's a, there's a lot of information about, you know, you need to get a better investment rate of return you need your money working for you. So let's put it in to these, these products. Now these products are designed as part of the system and it's collaborated with another system which is called the banking system. So a lot of people don't realize that the banking system is so encroached in our life. And you know, they want to make it as easy as possible for you to get your money into that system, introduce, they want you to deposit. Because if you think about it, all that money that you're introducing into that system, they now have in, I'll call it inventory, some source for themselves, pretty much free of charge because you comfortably just give it to them to go and they're going to use that money to go do things to make profit and not share any of that profit with you. So when you kind of recognize the money that you, that you work hard for, you free, if you want to take power away, you take the power away. But instead of flowing that money to some banking institution, you flow it into your own system. And for the first part is again education, knowing that there's a possibility you can create your system. It's not as physical as you opening a corner branch store of your own bank and going through all those laws and regulations and applications and whatever that needs to go in there. But it's in the form of a properly designed and structured whole life insurance policy. Now you know, whole life insurance policy is very ambiguous and vague in just that standpoint. But these are again, this is another one of those things that I will even share with you of my own personal education from kindergarten all the way through my CPA journey, I didn't even know of a whole life insurance policy. So that just kind of shows you how under discuss something like that. And so if you kind of think of just as taxes were not discussed, same as whole life insurance policies.

By virtue of getting educated and learning what that tool does and what it can do that really gives people like us, you and me, Richard, a lot of flexibility in giving that freedom to many Canadians by designing these policies in the way that they're supposed to be, is designed for banking purposes to achieve goals and objectives. There's so there's a lot of flexibility. And you know, again, the downfall is too much flexibility in the wrong hands also screw things up too. So that's a, that's another separate conversation.

Yeah, there's always a. Again, there's a give and take with just about everything. And what's, what's interesting about the 50, the disconnect I mean, obviously that appeals to me a great deal. I, I, it goes back to something that, you know, my mentor Nelson Nash said is that he wanted to help people find a way to peacefully secede, secede from a system that did not benefit them. That meant the banking system and that also meant, you know, to a degree the tax system, but, but generally speaking, the governing nature of things around your money. So he wanted you to have a way to peacefully, meaning voluntarily, without having to seek, you know, change at the top level through some, you know, new, new bill being introduced, you know, into, into the, into the House of Commons, that you could just voluntarily exit from your vantage point relative to your own personal needs throughout life. For, for financing needs for the things you're going to buy, capital acquisitions, investments, large purchases, these kinds of things that you're going to do anyway. You're already doing them. If you implement this mindset that Nelson talked about, the idea of becoming your own banker using the tool of dividend paying whole life insurance, you can, you can secede from that system one step at a time, one step of your own needs and then another step, and then another step and another step and eventually to a point where it can encompass your entire family's needs. And we know many people who have, who have done that. And the, the beautiful thing is that we're moving our money from. You talked about the, the banking system. The moment that you go make a deposit or money lands direct deposit into an account you have in a checking or savings account at a regular banking institution, what you're doing is you're actually giving custody of the money over to them. So when you log in and you look at your bank account balance and it says, hey, I've got $10,000 in my checking account. Well, that's, that's not your $10,000. That's the bank's $10,000. What you have is an IOU. The bank owes you $10,000 because you've given the 10,000 to them. They have custody over the capital, over the money. They're using that money until you ask for it. So you are actually a creditor of the bank. So every time that you have, you're an unsecured creditor of the bank, your savings account, your checking account, you are an unsecured creditor of the bank. That's a liability to that bank. But they actually have the money, it's their money the moment it lands in their account. And so they've done a really good job of, I mean, you know, showcasing that they're a safe place to, to put your money. But you know, really over time there's been a little bit of bamboozlement that's happening there because people don't recognize that as soon as the money is, is in their hands, it's theirs, it's no longer yours. You simply have an IOU that says a ledger that says, you know, bank. You, you owe us this money back. And when we ask for it, it should be on demand. But if you go to ask for more than $5,000 from a bank, do they give you the money right away? No, they make you, they're going to ask you a bunch of questions. Well, what do you need the money for? Oh, we don't have it here in the bank anymore. We've got this big giant building, but there's no vault here. We don't actually keep the money here anymore. We need to send away from it from head office. How many times have you gone into a bank and heard that song and dance story? And every time that that happens, it makes me want to take this desk and just flip it over against the wall and I get a little bit enraged. And if that's you, well, you know, I understand your feeling. So if you haven't experienced this, just go and try go into your regular local branch and just go and say that you need to access $10,000 of cash out of your bank account. Then just listen to the silly Mickey Mouse questions they're going to ask you because they want to know what are you doing with your money? Because you know what? It's not your money anymore. It's actually their money. That's, that's why they're going to ask all these questions. It's a very weird.

They switch the role onto you even though it's your money.

Yeah, it's, it's, it's, it's right. It's like a, it's, it's a switcheroo. That's exactly, it's like sleight of hand. And so by, by moving your deposits into a contract that is a contractual arrangement between voluntarily between you and the insurance company that you now co own, you can start maintaining more of that control in any non inflationary institution. They can't manipulate and manufacture new money through lending requirements. There's no possibility of that in the insurance company's world. So you're disconnecting from the system. So you're doing your deposit and saving business there. And then when you need access to money, you don't have to jump through any Mickey Mouse Stupid questions. If you want more than $5,000 or whatever, you fill out one piece of paper, you send it in and you know, typically within about whatever, somewhere in the, in the, in the six to 14 days that money lands back in your bank account. Granted, it's going to land in a bank account. We're still connected to the old system. We still have to utilize their facilities. But the premise of how we're, we're saving and utilizing capital is moving away from them into something that you have more ownership and control. And you get to, you get to generate a share in the overall profits now of the insurance company, which the previous, you know, banking institution wasn't doing for you. So that's really what, what Henry's talking about here. And then, and then again, going back to the, the tax system, I got on this little diatribe because I wanted, I wanted to get to something you mentioned earlier, which is about the different kinds of income. And one of those things is called a capital dividend. And so if you're able to make that shift eventually into a corporate structure, you already own a private, a control corporation in Canada, that capital dividend account is available. It's just waiting for something to activate it. And you mentioned a couple things that activate it. And one of those things is life insurance. So if you have a corporate policy that's owned there in that structure, when that death benefit kicks in, it's going to inject a ledger entry in that capital dividend account. Now maybe you've received less money because you've been borrowing against policy. There's less net value available to pay out a claim. But the, the entire, you know, usually at mortality age, the entire value ends up landing in that capital dividend account. Which means if you've been accumulating other assets, buying real estate, you own shares in a business, you, whatever, you have different structures of assets or investments you've accumulated, you're creating this tax free extraction potential that is available for the people you love and care about, not for funding the Canadian government's willy nilly spending spree and whatever the heck they want to chunk money at next time that has no bearing or basis in helping you or your children or your grandchildren. So that control is really, I think what we're talking about when it comes to disconnect. And I'm just, I'll throw it back at you, Henry, if I'm, if I'm hitting the mark or not in what you.

Yeah, yeah, yeah, you are. So the, the other, the part that a lot of people may not realize is those products that are being sold, those are products that when they increase in value they are considered income. So they fall back into the definition of the income tax act. So that makes the two systems between income tax system and the bank system, all of that is intertwined. I mean we were kind of talking a lot. I mean you were sharing a lot around the accessibility and the begging that you need for your own money. But when you're storing money in a properly designed policy, more specifically with a mutual company, there's a lot of other insurance companies like stock owned companies. But you know, stock owned companies are going to look at, look at these policies in the vantage point of a product and how profitable this product is. You know, I'm not in that insurance business, but I would wager they're probably, it's not pro, it's not, it's probably not the most profitable product. And so there's not a lot of resources dedicated to that. And then you know, stock owners are going to look at why are we diverting resources to an unpopular product. But you know, now they're kind of noticing a shift in the markets. Like why is there so much money moving to these whole life insurance policies? Well, because people know, right. But again, the, the devil's still in the details. Where, if we really understand banking and where we want to send, you know, our money, our money is our voting power, it's our strength, it's our voice. I don't know how you want to mention it, but when you're sending money to something that another insurance company, a mutual insurance company that you co own, you are giving power to your own company. And you know, Nelson talks about using a grocery store. If I had a grocery store, I would buy from my own grocery store. I'm not going to buy from another grocery store. But when, when you have your own contract and your policy properly designed, those values have a contractual guarantee to get to a death benefit by age 100. That's how it's designed. So these cash values, that reserve is going to grow to match that death benefit. And that growth or that increase of cash value is not in the definition of the income tax act because it's not income. There's no way they can include that definition into income because it's not income. It's a contractual guaranteed performance that needs to happen. So just by virtue of that behavior and design of the contract is not income and therefore it's outside of the income tax system. And therefore all of those things, other benefits that you get from A death benefit and a capital dividend account, all of those are not income either. So that's why when, you know, let's say for personally, for myself, when I discovered this and looked at it from that vantage point, things just changed. It just, you know, that's where I get super excited when I create a 20 year tax free retirement cash flow plan for those generations to come. But anyway, that's a separate thing.

Who wouldn't be super excited about creating a 20 year tax free retirement?

Only they would share that with me when I get excited just by seeing their faces. Like.

Awesome. Well, this was great, Henry. Thank you for sharing your, your wealth of knowledge again for everybody. I think it's, it's so beneficial to be able to have constructive conversations like this. And you know, I think to a degree when we're sharing these things with, with Canadian audience, we're giving them a degree of hope and we're giving them, if we're not, you know, we're not, we're not trying to give you all the answers, that's not the intention here, but we're trying to give you direction on how to go seek those answers, how to go and be very engaged in the process of your learning. So that you can say, oh, that, hey, that one that he mentioned about disconnect, that really appealed to me. Or divide, dividing the income. Oh, that makes sense. I wonder if I can do that now you have a platform because you know that the basis of these things and the structure that you talked about, how do I move myself from the kitchen over to the living room so I can relax and put my feet up on the couch right a little bit more when it comes to my taxable environment. And I think that's part of the benefit of having good discussions like this. So hopefully everyone got a great value and you enjoyed this. Please feel free to leave a comment. We'd love to hear from you. And more importantly, make sure you continue your journey of learning. Go ahead and check out one of the recommended videos that'll probably be popping up on the screen when we're done and make sure to check out some of the more good content on our channel. Have an amazing rest of your day. Thanks again, Henry for all of your knowledge and expertise. Really appreciate you being here with me today. Thanks for listening to the Wealth Without Bay street podcast where your wealth matters. Be sure to check out our social media channels for more great content. Hit subscribe on your favorite podcast player and be sure to rate the show. We definitely appreciate it. And don't forget to share this episode with someone you care about? Join us on the next episode, where we continue to uncover the financial tools, strategies and the mindsets that maximize your wealth.