Delay is your friend

Time waits for no man, but sometimes the taxman waits for our money

Tax deferral is the most common form of tax arbitrage. Its variations are manifold; from the time-honoured RRSP, a government sanctioned tax deferral scheme, to the extraordinary straddle. 

A simple strategy is to invest in an asset which creates wealth, but which has no immediate tax cost. Shares without dividends in a growth fund would be an example. If borrowed funds are used for to acquire those shares, the interest paid on those funds may be fully deductible. Provided the corporation can increase its wealth at a rate greater than the cost of borrowing, such wealth increase is not taxable until realized.  However any savings (i.e. deductions taken for interest on borrowings) are paid back on sale of the shares. In other words the increase in wealth is tax deferred: when done properly, the taxpayer is investing with interest free money, as the interest deductions were paid by taxes on other income.

While we all want to live long, we want our money to live longer, even if just by a bit…

The ultimate deferral: by borrowing against one’s assets, there is no need to pay tax until death, the ultimate deferral. In other words while there is no equity in tax, there is also no tax on debt. (The only major exception to this is borrowing from a company in which one is a shareholder, in which case the borrowings are taken into the borrowers income .)

Understanding where you are, what you have, the next move is often obvious.