02-09-2012 , 09:29 PM
Quote:
Originally Posted by Henry17
Doing the math on CPP is not difficult. The value of DIY is at least twice what you'll get from CPP even if we increase the average lifespan by a few years to account for advances.
Your math is wrong.

You can reread my post the and link and that would probably direct you towards your errors.

Or if you like, you can post your spreadsheet somewhere online and I'll take a look and tell you where you went wrong.
02-09-2012 , 10:21 PM
To do these calculations we would need to agree at what rate CPP maximum contribution is going to increase over the next 40 years. If we look at the historical data the average increase is 6.32% but that includes years where the increase was 0% and years where it was 26.12%.

If we use the average and assume a modest rate of return that beats inflation by 2% after taxes contributing to CPP will cost just slight over a million for someone who is 25 now and contributes until 65.

There are obvious issues with using 6.32% is that it signals major issue for the future of CPP but that is a different issue.

The maximum you can get from CPP is somewhere in the \$10,500-\$11,000 range. Assuming 3% inflation that means the maximum when the our hypothetical individual reaches 65 will be about \$34,000-35,000.

Assuming the same rate of return CPP would become the better deal only if you lived to 110.

If we take only the average increase from the last five years and use that then CPP becomes a much better deal. A 3.19% increase leads to the cost being a little over \$500k making the break-even point age 84.

That was based on being self-employed but since poker players don't normally pay income tax their after tax rate of return would be higher than 2%. If we increase it to 3% break even is at 91. At 4% it is 110. Most people should be able to do at least 3% and I would expect many could do much better than 4% and this is using half the average for the rate of increase. If we did the math for 4% at the 6.32% average CPP would never catch up even if you lived forever (in fact the gap would get larger every year you lived).
02-10-2012 , 12:03 AM
Quote:
Originally Posted by Henry17
To do these calculations we would need to agree at what rate CPP maximum contribution is going to increase over the next 40 years. If we look at the historical data the average increase is 6.32% but that includes years where the increase was 0% and years where it was 26.12%.

If we use the average and assume a modest rate of return that beats inflation by 2% after taxes contributing to CPP will cost just slight over a million for someone who is 25 now and contributes until 65.

There are obvious issues with using 6.32% is that it signals major issue for the future of CPP but that is a different issue.

The maximum you can get from CPP is somewhere in the \$10,500-\$11,000 range. Assuming 3% inflation that means the maximum when the our hypothetical individual reaches 65 will be about \$34,000-35,000.

Assuming the same rate of return CPP would become the better deal only if you lived to 110.

If we take only the average increase from the last five years and use that then CPP becomes a much better deal. A 3.19% increase leads to the cost being a little over \$500k making the break-even point age 84.

That was based on being self-employed but since poker players don't normally pay income tax their after tax rate of return would be higher than 2%. If we increase it to 3% break even is at 91. At 4% it is 110. Most people should be able to do at least 3% and I would expect many could do much better than 4% and this is using half the average for the rate of increase. If we did the math for 4% at the 6.32% average CPP would never catch up even if you lived forever (in fact the gap would get larger every year you lived).

Henry, you don't understand the structure of the CPP and you don't understand investment math. I'm not being rude, just stating facts.

For starters, the CPP contribution rates are adjusted to what is required to fund the plan on an ongoing base. That means the current workers fund the benefits paid to existing retirees. The contribution rates therefore change due to the demographic distribution of the population and that is the reason for the contribution rate increases in recent years

It is unlikely there will be any further increases beyond the current 9.9% combined rate. I point you to the following quote from the CPP website.
"The changes being implemented from 2011 to 2016 are affordable within the current CPP contribution rate of 9.9%. The Chief Actuary of Canada estimates that the CPP, including the changes being implemented, is sustainable at the current rate of contribution for the next 75 years (as of the 24th CPP Actuarial Report)."

Beyond that, there are a number of flaws in your analysis. They include, but are not limited to:

1. Not considering the investment income on the pre-tax tax deferred CPP contributions, vs the DIY post tax investment income. (perhaps not a consideration if one is evading taxes)

2. Not valuing the ancillary benefits of the CPP.

3. Not valued the COLA increase indexed benefits properly.

4. Not applying mortality tables to your life expectancy calculations.

5. Not discounting the payment streams of future benefits.

For your reference, I'm an actuary and this is what I do for a living. I don't want to insult you, nor pick a forum squabble. But your math on this is wrong in almost every way.
regards
02-10-2012 , 08:09 AM
That was very quick dirty and not meant to be perfectly accurate since you don't need that level of accuracy to illustrate this point.

The 9.9% rate is not the issue. The issue is the cap. The rate has been at 9.9% since 2003 and yet the cap has increased every single year since 2003. The rate was 9.9% in 2011 and will be 9.9% in 2012 and yet what you pay is increasing by 4.02%. The increase in maximum pensionable earning has to continue to increase at the rate of inflation or CPP will fail and yet it increases at slightly higher than the rate of inflation.

The total someone contributes is simply the sum of a series. \$4,613.40*1.0x^n for the values 1 though 40 where x is the rate at which maximum pensionable earnings will increase. Using the 2.79% average since the rate was 9.9% that means someone will contribute \$331,498.82 with no consideration for opportunity cost. If we use only the rate of increase for the last 5 years then we have an average of 3% and total contributions of \$347,924.79.

Those amounts don't include opportunity cost on the funds. This is where we will likely disagree. I see 10% as easy. Lets remove 4% for taxes leaving us with a after tax ROI of 6%. If we use the lower 2.79% for the increase in the maximum pensionable earnings and 6% as the after tax ROI a 25 year old today will have contributed \$1,046,192.91 to CPP by the time he turns 65.

I am not an actuary so I will not even attempt figure out anything beyond that but the idea that CPP benefits are worth more than a \$1M is absurd.

The last year I can quickly find a number for is 2010 and in 2010 CPP paid a maximum of \$11,210.04. Lets assume it pays \$11,600 now. What will it pay in 2052? I thought using \$35,000 was fairly generous. It doesn't really matter what number you arrive at since no reasonable number can match the income stream that having the \$1M you contributed would generate.

Just looking at the ratios of current contributions vs current benefits should be enough to tell people how ****ty a deal this is. Maximum contribution is \$4,613.40 and maximum benefit is \$11,600 plus on average you'll contribute for more than twice as many years as you'll receive benefits.

With respect to valuing the ancillary benefits as far as I know there are two major benefits. One is disability benefit -- completely at CPP's discretion. For someone who is self-employed and has considerable income from investments I see very little chance that they will be approved for disability benefits. I certainly don't see poker players qualifying. The second major ancillary benefit is that if I die and I happen to be married by wife will not get a reduced percentage of the already pathetically small amount I would get if I was alive. I don't see any value in either of these so not including them is intentional.
02-10-2012 , 10:24 AM
Quote:
Originally Posted by gg99
... you don't understand investment math...your math on this is wrong in almost every way.
this
02-10-2012 , 11:32 AM
That isn't much of an argument. I'm too lazy to bother uploading excel spreadsheets so we can just use a online savings calculator.

http://www.fiscalagents.com/toolbox/...vest/ird.shtml

Initial Investment = \$0
Amount per Deposit = \$4613.12 the amount that someone would pay in 2012
Deposits Increase Annually by = 2.7%
Number of Years = 40
Annual rate of return = 6% (10% generously discounted to account for income tax)

The answer the online calculator gives me is actually slightly higher than what my excel worksheet gave me at \$1,094,000.

So what exactly is wrong with my math?
02-10-2012 , 04:29 PM
I am one of those ppl that didn't read the entire thread and has a question that is probably already answered, pls be gentle

I am from Europe and will be spending 5 months in Canada working for a company. Will I be subject to any taxes on online or offline poker winnings earned during my stay?

02-10-2012 , 06:30 PM
Quote:
Originally Posted by Henry17
That isn't much of an argument. I'm too lazy to bother uploading excel spreadsheets so we can just use a online savings calculator.

http://www.fiscalagents.com/toolbox/...vest/ird.shtml

Initial Investment = \$0
Amount per Deposit = \$4613.12 the amount that someone would pay in 2012
Deposits Increase Annually by = 2.7%
Number of Years = 40
Annual rate of return = 6% (10% generously discounted to account for income tax)

The answer the online calculator gives me is actually slightly higher than what my excel worksheet gave me at \$1,094,000.

So what exactly is wrong with my math?
Fergastra, no you're fine. Where are you staying in Canada?

Henry,

Here is a simple answer:

Pre vs Post Tax Contributions

Your CPP contributions would received a tax credit, whereas your FIY contributions would be net of tax (approx 79% of \$4.6k)

Unreasonable Rate of Return
You have assumed a 10% gross pre-tax return, 2.7% inflation, and a 7.3% real pre-tax return (net of inflation).

In contrast, the CPP board is assuming a 4% real return, and that assumption has been criticized as too high in light of recent economic events.

It is pure hubris for you to suggest that you can generate a 7.3% real return for the next 40 years. To be able to do so would earn you a 7 figure salary on wall street.

Similarly, it is an apples to oranges comparison to use a 7.3% real return for your DIY projections, and a 4% real return for the CPP. Consider if you tilted the scales the other way, and used a 0.7% return for your DIY projection.

Taxation of non-Registered Returns

If you undertook a fair apples to apples comparison, you would use a 6.7% gross return (including your 2.7% inflation assumption). You then pay 35% capital gains tax on your 6.7% (a simple example, before we get into tax planning). Your net gross return is 65%x6.7%=4.4%. Your real return is then 1.7% (ie net of 2.7% inflation). Do you see how the tax consideration can decimate your real return? In fairness, there are options to mitigate this, but I trust you see the point.

Best Estimate vs Guaranteed Rate of Return
Your assumption of 10% is not only your "best estimate" but it considers no other possibility. In effect, it is not only high at 10% but it is guaranteed in your scenario. This makes it even more unreasonable.

Consider two options.
Option A pays you \$500k in 40yrs guaranteed.
Option B pays you \$1m or \$0 in 40 yrs w equal likelihood.

Both have the same best estimate of \$500k. But the latter includes risk with no premium, and so any rational investor will always choose the former.

A part of what the CPP offers is a certainty of benefit (a guarantee). Whereas in your comparisons, you compare your best estimate calculations with the CPP guarantees. (note that the CPP "guarantees" may not be a true contractual guarantee, but in practice the benefit is the same). This is an apples to oranges comparison, which doesn't properly value the guarantee element of the CPP benefit.

Conclusion

These are just my points on the DIY calculation you put up. We haven't discussed your valuation of the CPP benefit/costs. Nonetheless, I trust you can see that you are missing some of the relevant considerations in your analysis. I would suggest that you (and any other reader) read some books on the matter, go to some proper finance forums, and begin to educate yourself on this stuff. If you are smart enough to win at poker, you are smart enough to understand this stuff.

regards
02-10-2012 , 07:50 PM
Quote:
Originally Posted by gg99
Fergastra, no you're fine. Where are you staying in Canada?
Thanks for the quick answer. I will be staying in a small town about 70km west of montreal.

So no taxes on neither online nor offline winnings?!
Sweet

After reading the old OP, I should add that poker wont be my primary source of income during my stay, unless a major upswing hits me

Last edited by Fergastra; 02-10-2012 at 08:05 PM. Reason: stuff to add
02-10-2012 , 07:50 PM
So basically what it comes down to isn't that the math is wrong but that you think a conservative rate of return is too high. Good thing I went with what I thought other people could achieve rather than what I would use for my own calculations.

If your point is that CPP is a good option for people who are completely incapable of investing their own money then I can't really disagree with that.

If the claim is that 6% after tax return is not reasonable then that is simply wrong. If this discussion was happening in BFI I am pretty sure the ROIs people would use would be much higher.
02-10-2012 , 08:46 PM
Quote:
Originally Posted by Henry17
So basically what it comes down to isn't that the math is wrong but that you think a conservative rate of return is too high. Good thing I went with what I thought other people could achieve rather than what I would use for my own calculations.

If your point is that CPP is a good option for people who are completely incapable of investing their own money then I can't really disagree with that.

If the claim is that 6% after tax return is not reasonable then that is simply wrong. If this discussion was happening in BFI I am pretty sure the ROIs people would use would be much higher.
Ignorance is bliss. Bonne chance!
02-12-2012 , 08:54 AM
I think it's funny to read a debate about the value of CPP in forty (or thirty, or twenty) years. It's like calculating the odds of making a flush in Hold'em on the card that comes after the river.
02-12-2012 , 09:23 AM
We never reached the point of attempting to value CPP in 40 years. We got stuck on the more basic calculation of how much will CPP cost someone. gg99 seems to be under the mistaken impression that very reasonable rates of return are pie in the sky dream returns.

The point is that even under ideal valuations for CPP in the future it is a ****ty deal for anyone even remotely competent at managing their own money.
02-14-2012 , 05:36 AM
Free certified tax software programs

This is a CRA link and page:
http://www.netfile.gc.ca/sftwr-eng.html

I have used StudioTax for 5 years.
It has no support but works great for me and the 10 or so tax returns that I do yearly.
PM me if you have any questions.

Dan
02-14-2012 , 08:40 PM
If Im filing taxes from poker income for the first time from 2011 winnings, should I also inform the bank when it comes time to get a car loan/mortgage? Currently according to the bank, I am still employed at my old job that I quit in OCT 2010.
02-14-2012 , 08:53 PM
If the bank asks for paystubs then you'll be forced to. If they don't I wouldn't.
02-15-2012 , 04:00 PM
Quote:
Originally Posted by onnunniko684
Peter Ingram from the Centa group emailed to tell me that Poker winnings are non-taxable regardless of how much you win.
lmao
02-15-2012 , 04:00 PM
Quote:
Originally Posted by onnunniko684
lmao so a tax lawyer doesn't know what he's talking about...
Believe it or not, this is very possible....

Do you live under a rock?
02-18-2012 , 09:15 AM
there's no reason to believe an average person over a tax lawyer
02-18-2012 , 09:23 AM
iNTERESTING FEDERAL APPEAL COURT DECISION RE: GAMBLING & TAXATION

http://news.ca.msn.com/top-stories/g...-court-rules-1

Code:
```A Toronto man trying to write off casino and racetrack losses against his income tax bill has gambled and lost at Canada's Federal Court of Appeal.

Giuseppe Tarascio claims that gambling is how he earns the bulk of his income. He filed tax returns for several years, claiming both his wins and losses.

By day, Tarascio is a technician with Bell Canada. But on evenings and weekends, he responds to what he claims is his true calling: horses, slot machines, casino games and lotteries.

He claims to have won tens of thousands of dollars. For years he claimed those winnings as income, but he also deducted his losses and expenses.

In his income tax returns for 2002 and 2003, he deducted from his gambling winnings his losses and associated expenses: \$40,933 in 2002 and \$56,000 in 2003.

But Tarascio’s luck ran out when the Canada Revenue Agency (CRA) stepped in and disallowed those deductions.

Tarascio objected and went to tax court. He presented his books and records, but lost there too.

No 'systematic method,' court rules

Hoping his courtroom losing streak would end, Tarascio pushed his luck further, taking his case to the Court of Appeal.

He claimed that his degree in mathematics — coupled with his experience in probability theory — gave him the expertise to register his gambling as a business.

But the court turned him down, saying Tarascio had no "systematic method" for gambling and had spent no time practising his skills. He was also required to pay court costs of \$1,000.

It didn't help that Tarascio admitted that win or lose, it was really the thrill that drove him to the tables.

Colin Campbell, who teaches tax law at the University of Western Ontario, said the test of whether or not gambling losses are a legitimate writeoff depends on whether it’s a personal or commercial activity.

“That's the dividing line,” said Campbell. “And in the case of gambling, the courts have generally found that gambling is predominately a personal activity.”

Tarascio didn't want to talk about the decision when contacted by CBC News.

Asked if he planned to appeal to the Supreme Court, he said no. That would require a lawyer, but Tarascio said he can’t afford one.

With files from CBC's Maureen Brosnahan```
02-18-2012 , 09:35 AM
Quote:
Originally Posted by axemmiw905
there's no reason to believe an average person over a tax lawyer
First, I'm not sure if that individual is a tax lawyer. He has an internet site where he answers questions and a quick look shows that many are wrong. It is also uncertain but I would not be surprised to be told that the persona maintaining that site is somewhat mentally ill.

Second, at least two of the people posting in this topic are lawyers and a third has an LLB from a tax-centric law school so not really average person vs tax lawyer.

Third, and by far the most important -- CRA says in black and white that gambling winnings are taxable if the individual engage in gambling professionally.
02-18-2012 , 09:43 AM
Quote:
Originally Posted by McQ
By day, Tarascio is a technician with Bell Canada. But on evenings and weekends, he responds to what he claims is his true calling: horses, slot machines, casino games and lotteries.
The guy is just a nutcase. He has no chance of winning and is just wasting everyone's time. Luckily he can't appeal to the SCC without representation and he can't afford a lawyer so this insanity will end. He should have been hit with a lot more than \$1000 in costs for this.
02-18-2012 , 11:18 AM
This is what I found to be of interest

Quote:
Colin Campbell, who teaches tax law at the University of Western Ontario, said the test of whether or not gambling losses are a legitimate writeoff depends on whether it’s a personal or commercial activity.

“That's the dividing line,” said Campbell. “And in the case of gambling, the courts have generally found that gambling is predominately a personal activity.”
A taxable commercial activity (read incorporated co.) is what must be established and even then you are at the mercy of a judges interpretation. Why would any reasonable thinking individual want to expose themselves to taxes when it's clearly unnecessary.

The character of the petitioner is a moot point.
02-18-2012 , 12:01 PM
Quote:
Originally Posted by McQ
A taxable commercial activity (read incorporated co.)
You are misunderstand what Colin is saying.A commercial activity does not need to be an incorporated company. A large percentage of small businesses are not incorporated and yet constitute commercial activity. Professional activities are also considered commercial activity and they also do necessarily involve incorporating. Basically anyone who fills out form T2125 is engaging in commercial activity and not incorporated.

What Colin is saying is what we have been saying since the first day of this topic -- that is if you approach gambling like a business (play professionally) then it is taxable and if you don't (play as a hobby) then it is not.
02-18-2012 , 01:06 PM
If Tarascio claimed his gambling as income for years, I assume he paid taxes on it. Now that he is being denied the ability to claim losses, does he get reimbursed for the taxes he paid on his winnings?

m