Brexit, Tax Havens, and RRSPs
Brexit and the Pound – A Crash Course?
The UK is officially 46 days away from leaving the EU – and to be honest, everyone is stressing. The clock is ticking, and there’s still no deal in place between the UK and the EU.
It’s time for an incredibly brief overview of what’s been happening in the past few months RE Brexit negotiations: Theresa May proposed her plans for a Brexit deal to the House of Commoms. Parliament made it abundantly clear that they did not like the agreement by voting overwhelmingly to reject the proposition, sending May back to the drawing board. Her next move is TBD – and with very little time left.
With all the Brexit debauchery, citizens of the UK and the rest of the world are wondering – what does this mean for the powerhouse Pound Sterling?
When the referendum vote returned a verdict that the UK had narrowly decided to leave the EU, the pound plummeted to a monumental 30-year low, dropping approximately 10% against the Euro. This economic blow was also felt across the pound, with the Dow dropping more than 400 points (2.6%) within minutes of opening the day after the referendum.
2018 saw the pound continue to sway because of key Brexit decisions, but ultimately was a more stable year than 2017. As of 29 January 2019, the pound fell (yet again) by 0.76%.
So where does the pound sit now, what’s going to happen for the pound this coming year, and how will the Canadian Dollar fare against it?
The current GBP/CDN exchange rate is 1.72 dollars. Interestingly/depressingly, despite the sh*tstorm Brexit created for the pound, it still significantly outperforms the Canadian dollar. We touched on the oil crisis and a possibly inflated housing market in last week’s edition of Bthcoin – among other issues those resulted in the pound making gains on the dollar in the final quarter of 2018.
With yet another Irish backstop vote on the cards this coming week and the UK deadline for ratification on 26 February, it’s safe to say the pound will be anything but stable in the coming months.
Like Canada, the UK relies on foreign investment – a bad deal could lead to a major sell-off of assets in the country and a resulting currency plunge. On the other hand, the UK has a pretty steady fiscal and monetary system – so it’s also possible that depending on the deal, currency could be relatively unchanged.
Regardless, the Canadian dollar is comparatively weak, so we wouldn’t necessarily recommend a vacay to the UK anytime soon – your hard-earned cash won’t go very far… Cheerio old sports!
The Gov is Trying to Get Rich People to Pay Their Taxes…
A new bill set to become law is expected to greatly transform the way that Canadians are able to shield their money from the CRA.
Basically, any corporation registered in Canada will now be required to 1) disclose the name and birthdate of its owner, 2) the tax jurisdiction the owner resides in, 3) the date the owner acquired control of the corporation, and 4) a description of how control is maintained.
That may seem pretty basic, but without these standards, it was possible for an individual to acquire an inactive corporation (shell company), funnel their money into it, and avoid taxation because of the lack of owner information linked to the account.
You know who loves the anonymity of shell companies? Organized crime groups, terrorist financiers, and run of the mill wealthy tax dodgers. Solid folks. And guess what? They loooove Canada.
For years, Canada has fostered a reputation as a great place to set up shell companies and hide your money away from the prying eyes of law enforcement.
With this piece of legislation, we’re catching up with the rest of the world by forcing companies to enlist on provincial and federal registries – ensuring greater transparency.
Of course, that doesn’t mean that wealthy Canadians who were hiding their cash in shell companies will simply begin paying taxes. Some might, but many will move it over to other international tax havens, like the British Virgin Islands, Cayman Islands, or Bermuda, where Canadians have both legally and illegally hidden an estimated $90.5 billion. Some of that money is in shell companies (illegal), some is stored in above-board, legal accounts. Globally, the amount of offshore Canadian income sits closer to $240 billion (!!!). Turns out that paying your tax bill is passé.
Canada’s new legislation is a step in the right direction, but it’s going to take consistent international pressure to ensure other countries up their game (check out the FATF to learn more).
Speaking of Taxes…
So we told you about TFSAs, and how important they are for your financial future.
Now, we’re going to talk about the Registered Retirement Savings Plan (RRSP).
A RRSP is an account you can open to store money for retirement. Within the account, people can hold a range of investments, like mutual funds, bonds, stocks, ETFs, etc. What makes it different from any other account, however, is that you won’t get taxed on the gains or dividends you make through these investments.
Like TFSAs, the amount you can contribute changes every year. This year, you can contribute 18% of your income, or $26,230 – whichever is smaller. There are even methods for you to catch up on contributions if you were unable to contribute in previous years.
Additionally, the money you put into an RRSP can’t be taxed. So, for example, if you contribute $3,000 to your RRSP from your $46,000 salary, you’ll be taxed for an income of $43,000.
The deadline to do this coming up: March 1!
So this tax season, think about shoving some of your hard-earned cash into an RRSP – an important step in creating an independent financial future for yourself.
Read more about the rules on the CRA website here.