April 27, 2008

A Week In A Handicapped Hotel Suite

I'm in Ottawa all week staying in a suite hotel. For whatever reason, I got a suite for the handicapped. Ironically, staying longer restricted the choice of rooms available. I feel uncomfortable for two reasons
  • a disabled person loses access to the room
  • intruding into the inner world of a disabled person
Public Space or Private Place?
In Blink, Malcolm Gladwell notes that we can learn more about someone by spending minutes alone in their private space than from months observing their public face, stay at dinners and parties. That observation still doesn't motivate me to tidy up my office :)

The front desk assured me that the room was "normal" except modified for a wheelchair. From the hall, there's no sign that this room is different --- a nice touch.

Here's what I noticed:
  • wider hallways and more open space
  • lower counters
  • lower bed
  • bath tub with support bars
  • higher toilet seat
  • lower thermostat and light switches
  • lower clothes bar in closet
  • nothing in the kitchen's upper cupboards
To my surprise, the hot water tap spews lukewarm liquid. Protection against scalding? Actually, no. It just took time for the water to heat up and reach my room. This may be environmentally friendly, but it wastes minutes of water flow. Maybe there aren't many guests drawing water at the time. Regardless, the room itself cannot be a factor.

The Shower
The shower head is at a lower height and in the middle of the long wall. Picture a microphone on a stand. That's the height. To wash from the top of my head to my upper shoulders, I need to bend down or kneel. Each of the three walls has a support bar, which seems like a good idea for any bathroom. There are no support bars elsewhere in the suite.

Just Right
The room looks right for someone seated in a wheelchair. It great that the hotel has such facilities. I just hope that a handicapped person won't be turned away because of my intrusion.

April 21, 2008

The Problem of "Trapped" Retained Earnings

The government encourages small business (technically Canadian-Controlled Private Corporations or CCPCs) through favourable taxation. Let's see the effects in Alberta, the province with the lowest combined federal and provincial tax rates. Active business income up to the Small Business Limit (generally $400,000) is taxed at 14% and the balance at 29.5%. These rates are attractive compared to the 39% marginal tax rate on personal income.

All isn't rosy. Governments discourage small business from generating passive investment income with a hefty tax rate of 44.7%. And that's in low-taxed Alberta.

What Do Business Owners Do?
Typically, small business owners and incorporated professionals like doctors pay tax on income up to the Small Business Limit and retain these after-tax earnings in the corporation (e.g., $400,000 less 14% leaves $344,000 retained). Prior to eligible dividends, income above the Small Business Limit was generally paid out as a bonus (tax deductible to the business and taxable to the recipient). Now accountants often recommend that tax be paid and the after-tax earnings be retained unless the owner wants to spend the money.

A successful small business can easily have hundreds of thousands of dollars in retained earnings "trapped" inside the corporation to avoid additional taxation. This is not what the owners want.

Uses of Retained Earnings
Retained earnings can be used in three ways
  1. reinvested to grow the business (which results in more taxable income)
  2. spent (goes to owner via dividends from after-tax income, effectively taxed at the top marginal tax rate)
  3. saved in the corporation (and investment income taxed at rates higher than the top personal marginal tax rate)
Saved Retained Earnings
What tax-effective strategies deal with saved retained earnings? They can be invested in dividend paying shares of some Canadian companies since the dividends are received tax-free (and can be used to buy more of the same). This builds more retained earnings in the corporation, though.

Another solution is to transfer the retained earnings into universal life insurance for
Tax-Free Access
If the owner wants income in the future, the corporation can use the cash value as collateral for tax-free bank loans and distribute the proceeds to the owner as shareholder dividends. Since the collateral is so secure (an insurance contract backed by a multi-billion dollar insurance company), there are generally no requirements to pay the loan interest on an ongoing basis. Instead, the loan and the accumulated interest can be paid with the tax-free death benefit.


April 6, 2008


The Real Estate and Wealth Expo returned to Toronto last Saturday. I bought a VIP ticket last year (see Too Good To Be True and Secrets To Billionaire Success) but couldn't stomach the onslaught of unrelenting sales pitches and stayed away. Maybe others couldn't either. Last year's event ran two days with Tony Robbins headlining Saturday and Donald Trump on Sunday. This year the event was only on Saturday with a prerecorded Trump as the featured guest.

The general theme is that you can get rich quick using turnkey systems. You don't need any money ... as long as you pay a special low, low, chance in a lifetime price --- roughly $1,000 --- to find out how. You can't really fail (but if you do, it's your fault). Reward without risk. Who can turn that down?

The wealthy can. Maybe that's why they get wealthier. Which annoys those who aren't in the same category. Back in high school, I thought the wealthy got too many tax breaks, which was unfair and even un-Canadian. Make the rich pay their fair share! Increase the minimum wage! Have more unions! Vote NDP! Such was the passion of youth in the digital days of black/white, right/wrong.
And I'll give my consentTo any governmentThat does not deny a man a living wage--- Billy Bragg, Between The Wars
Clucking or Soaring?
Back in 1992, a Brian Tracy course (The Phoenix Seminar: Achieving Personal Excellence) taught a new truth: you can soar with the eagles or cluck with the turkeys. That was the right message at the right time. I resolved to spend more time with the eagles. The turkeys resent your transformation but your new peer group welcomes you. There's always room at the top to enjoy the cleaner air, extra sunshine (but wear sunblock...) and breathtaking view.

Three Reasons
So why do the wealthy get wealthier? I've observed three reasons:
  1. Competitive advantage: they become the best in the world (clients define "best" and "world")
  2. More options: they consult with specialists (who they pay for results, not effort) as they move along their Financial TRAIL
  3. Tax strategies: they minimize tax to preserve and grow their wealth
Momentum compounds like investment returns. Wealthy begets wealthier. An upward spiral. Without get-rich-quick schemes.