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I either didn't explain things well or you didn't bother to read what I wrote:) You get tax sheltering two ways. 1) you get to collect gains on the amount you

I either didn't explain things well or you didn't bother to read what I wrote:) You get tax sheltering two ways. 1) you get to collect gains on the amount you would have paid tax on originally, so if you shelter $120,000 for a year, you get the 20% in gains on that amount. 2) you don't pay the dividend rate until you pull out the money from the corp. So you can leave it in the corporation for 20 years, allowing it to grow at our imaginary 20% rate per year. working through the example again individual 1 is still $360,000 his $500,000 - $200,000 from taxes(I'm Canadian), plus the 20% gains on his $300,000. Individual 2 gets to shelter the entire $500,000 for the year allowing her to get gains on the whole amount so she has $600,000(with 20% growth, we are a hedge fund after all). She then has to pay the %20 corp tax on her original $500,000($100,000) leaving her with $500,000. She is then free to let that amount grow until she wants to take it out, at which point its taxed at the 20% dividend rate. If you compare the person who leaves their money in the tax sheltering corp for 10 years vs the person who takes their bonus as income you'll find that the corp comes out substantially ahead. I've done the math and seen it play out in the real world:)

yummyfajitas 11y ago
You are making a calculation mistake. If interest rates are 20%, then $1.20 next year = $1.00 this year. In reality, the person who invests the money actually comes out worse. If his investment had either profit or capital gains, he paid even more taxes. I.e., instead of getting $1.20 next year for every $1.00 he put in this year, he's getting something less than that. With the current taxation regime, the only benefit to investment is shifting consumption into the future. But you actually pay pretty dearly for that. You can see a more detailed explanation here: http://www.themoneyillusion.com/?p=28842 http://www.themoneyillusion.com/?p=28842
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- chollida1 11y ago
  :) The interest rate isn't mentioned, but its probably around 1%. The funds capital gains were 20%. I'll let you re-read my above posts to figure out where you went wrong. My email is in my profile if you need help:)
  - yummyfajitas 11y ago
    The average investment will achieve average returns (== the interest rate to use for this calculation) and as a result one loses NPV(consumption) by investing. Only a tiny fraction of Individual 2's actually manage to do what you are describing.
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yummyfajitas 11y ago

You are making a calculation mistake. If interest rates are 20%, then $1.20 next year = $1.00 this year. In reality, the person who invests the money actually comes out worse. If his investment had either profit or capital gains, he paid even more taxes. I.e., instead of getting $1.20 next year for every $1.00 he put in this year, he's getting something less than that. With the current taxation regime, the only benefit to investment is shifting consumption into the future. But you actually pay pretty dearly for that. You can see a more detailed explanation here: http://www.themoneyillusion.com/?p=28842 http://www.themoneyillusion.com/?p=28842

deleted 11y ago
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chollida1 11y ago
:) The interest rate isn't mentioned, but its probably around 1%. The funds capital gains were 20%. I'll let you re-read my above posts to figure out where you went wrong. My email is in my profile if you need help:)
- yummyfajitas 11y ago
  The average investment will achieve average returns (== the interest rate to use for this calculation) and as a result one loses NPV(consumption) by investing. Only a tiny fraction of Individual 2's actually manage to do what you are describing.
deleted 11y ago
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