Charitable giving tax shelters

Income tax policy, rules, problems, strategy and software. Property and consumption taxes too.
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Bylo Selhi
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Post by Bylo Selhi »

Adrian wrote:This does not have the sexiness of a charitable tax shelter.
No, but it does get real money to the charity rather than some overpriced unknown software ($25k for an education package???) that they probably don't need.
However, for if you simply want to make a donation in 2005 to your favourite charity, consider donating a security (say a stock) that has an accumulated capital gain.
Excellent idea! See also thread Donating Stock.
Just ask your favourite charity how you go about it.
Also talk to your broker about this. You can't do this sort of transfer over the phone. They'll need written instruction.

And be sure to allow plenty of time for the transfer to take place. I initiated two of these transfers from TD Waterhouse in mid-November. One is still pending. TD WH says the receiving broker (RBC) is dragging their heels. That was the same situation last year. If anyone else is serious about doing a transfer-in-kind to a charity you'd better start the ball rolling now. If you wait much longer it may be too late for a 2005 tax deduction.
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Post by dagan »

[Restored from backup 2006-07-18]
saylavbda wrote: Don't know the original legistation e.g. part of the tax act in question, but it sounds like there was a gray area in the original legislation that allowed for overly generous valuations to be used. The legistation was amended to clarify the gray parts.

At the end of the day, if I donate $5K but get a receipt for $20K, then something is fishy.
The statement is not factual. This isn't about donating $5,000 cash. It's about the value at which assets are donated. If you donate $5,000 worth you can only get a receipt for $5,000. Also,the legislation was inconsistently changed for certain things and not others. Yet, grey areas still exist. Lastly, you have provided no basis for your 'overly generous' comment.
saylavbda wrote:If people were able to take advantage of it due to flawed legistation in the past, then good for them. But I don't feel sorry for anyone caught with their hand in the cookie jar.
Cookie jar meaning any deduction that you personally disagree with? Careful. Are you advocating that any uninvolved party can now determine which of your tax deductions and deferrals are 'cookie jars' and which ones are valid and proper? What if I feel that income trusts and low capital gains taxes are huge cookie jars based on flawed tax legislation that should be fixed. Hmmm, maybe we are all better off that determinations are not actually made this way.
saylavbda wrote:From what I've seen of these schemes is it's all about money, not helping a charity, but helping themselves to a large tax break based on questionable valuations.
It can be about both. I can write that capital gains taxes are a tax break for the rich at the expense of the working class and have nothing to do with benefitting job and economic growth. similarly, there are no lofty goals of not paying full tax on income trust distributions. It is just a tax break for greedy investors who do not care about what this does to other businesses or other taxpayers. They sound like huge scams.
saylavbda wrote:The other problem is the potential impact on people who honestly do want to donate something e.g. an art piece that's been in the family for years.
Yes that is a problem. But why are you worried about the person who has held an asset for years and not other donators? How long is acceptable to you? Is it flawed legislation or a scam if the next poster has a different point of view than you?

The legislation said (and says), what it said. We have to believe that it intends what it actually says. Transactions that follow this are legal, even if a poster doesn't like it very much. We all like and dislike different things, but these are just our personal opinions.

I don't mean to be overly oppositional, but your whole point of view sounds like this to me:

My tax planning = Good. No need to even raise or consider it.
Other tax planning = Bad.
Last edited by dagan on 01 Dec 2005 17:02, edited 7 times in total.
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Post by dagan »

[Restored from backup 2006-07-18]

I am happy to abide by our legal system in determining what is legal and not legal. My beef is the somewhat fickle way that this has occurred in this area. The decisions have been very back and forth.

Anything else to me just smacks of "I don't like it", to which I reply "So what?".

Any logic that can be provided to support 'this' while constraining 'that', can be used in ways that a poster might not like nor have expected. I think that we have been there and done that.

I think that preferential taxation of income trusts should be eliminated. How can someone be paid cash income and not have to call it income on their tax return and pay tax on it? It sounds like a huge scam that should be fixed to me. So what? Another poster may disagree. I don't want to get into a lengthy circular debate about people's personal preferences.

I think that we should just agree to disagree at this point.
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Post by dagan »

[Restored from backup 2006-07-18]

Mr Durand:
I have therefore decided to pass
IMO, no big loss here. His answers were very cursory and accompanied by his disclaimer that he is not authorized and no one should rely on his statements. He provided no credentials for his opinions and no rationale for his answers. Some of his responses were actually contradicted by the response to the same question received from the charity.

This one might be interesting in its implication:
Q. Can an individual complete the qualifying application directly to the trust/charity?

A. (Mr. Durand) Yes. You may complete the application and forward it to the promoters of the program in question. You may include your donation or not,. You may choose to subsequently change your mind. The trustee, at his sole discretion, will decide how much, if any, of the gift will be gifted to you. Since the gift is offered to people of similar mind, as in "philanthropic" people, it may be beneficial to donate in order to increase your likelihood of receiving a significant gift from the trust. Since the end of the tax year is approaching, it might be unwise to attempt this and end up with little or none of the anticipate FREE gift as a result of a decision to not donate. Just my suggestion..certainly not the rule. Doing so to avaid my getting paid on it seems odd considering I am the oen providing the information, don't you think?

A. (GLGI) No. You would have to go back to the person who told you about our program.
Although the charity contrarily confirmed that you must apply and qualify through a third party, I thought the roundabout relationship between donating cash and potential for receiving 'free gift' and the amount thereof, was creative but actually very amateurish. In a court of law, this response kills much of the success the program is attempting. Good thing Mr. Durand is not authorized to speak for anyone.

For the record:
(Mr. Durand) i would appreciate you posting the answers on the forum since I have been blocked.
And...
(Mr. Durand) By the way, I do not represent any program in a PR or legal way. These explanations are entirely my own and are NOT to be considered authaurotative or used or relied on in any way. Always seek independant legal counsel before deciding to participate.
He declined to provide the relavant documents for my lawyer to review when I requested them. He declined to provide any credentials.
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Post by dagan »

[Restored from backup 2006-07-18]

Another reminder. Mr. Durand is not a representative of GLGI and appears to have no qualifications. He is not representative of the underlying programs and our evaluation of him should not affect GLGI or other non-related programs in any manner.
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Post by dagan »

[Restored from backup 2006-07-18]
"Without explicitly saying so, you underscored what these schemes (only a few letters away from "scams") truly represent. These products do not represent the true spirit of philanthropy - the betterment of humankind. Unfortunately, these schemes reflect the very nature of those who promote them. The tenuous loopholes on which these schemes hang their hats should be closed forever. They represent a genuine threat to the future of true philanthropy in Canada - and I still believe that future is a bright one."
I could write the same in response to low capital gains tax and preferential taxation of income trusts. Income trusts actually hurt the economy because they could require companies to spend billions of unproductive dollars to convert to stay competetive. They deplete the source of much needed tax revenue that should be collected and directed to health care. Greedy investors disclose their true nature when they buy these schemes.

I could continue, on this and countless other examples.
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Post by dagan »

[Restored from backup 2006-07-18]

FWIW, I remember asking the proponents of the former I-Bond campaign to quantify and defend their support of yet another tax break vis-a-vis other worthy goals such as improved funding for health care and education. The gist of the response was that every individual is entitled to selfishly lobby for their own benefit. No other justification is required nor warranted as this could even be considered the role of government and not proponents for or against. I remember some of the emotion and support. "Yeah. This is great. How could the government not consider this?!" I was played the role of outcast in questioning "how does this help the economy more than health care spending and feeding the poor?"

Logic is a funny thing. It can be twisted for people to justify almost anything that they selfishly want.
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Post by dagan »

[Restored from backup 2006-07-18]

BTW, were you able to find the tax shelter ID number of Paul Martin's blind trust? :wink:
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Post by Bylo Selhi »

dagan wrote:FWIW, I remember asking the proponents of the former I-Bond campaign to quantify and defend their support of yet another tax break vis-a-vis other worthy goals such as improved funding for health care and education. The gist of the response was that every individual is entitled to selfishly lobby for their own benefit.
Your memory is faulty. The rationale for I-bonds is to encourage people to save without losing most or all of their interest income to the twin bogies: tax and inflation. That's not possible for many people with current CSB rates.
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Post by ModeratorQ »

We have no problem with professionals showing their websites in their profiles and we have no problem with professionals showing their websites in their signatures as long as that's more or less all they do. However, we do have a problem when there is open solicitation of business as there has been in this case. Therefore, we have deleted the website reference and changed the members id from its website reference to the member's name which is disclosed at his website.
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Post by saylavbda »

dagan wrote:
Lastly, you have provided no basis for your 'overly generous' comment.

I don't mean to be overly oppositional, but your whole point of view sounds like this to me:

My tax planning = Good. No need to even raise or consider it.
Other tax planning = Bad.
My view of these programs are based on what I have read and seen about them. First and foremost they are packaged as a way to reduces taxes via donations. Nothing wrong with that, Bylo linked to way of doing it. Where I find it strays is in the - you pay/donate/purchase either art/prints/software for $X and we arrange for a valuation and hence tax receipt of $XX, where the $XX is several times the original amount. If the doubling or tripling of the original amount is overly generous, I'm open to another term, but how can I purchase a print of $100, never receive it, donate it to some charity and claim that it was actually worth $300. Where did the extra $200 come from? If it is worth $300 why are people able to buy them for $100?

As for the points about income trusts, the income is taxed, maybe not today, but it will either be taxed later on disposition.

CRA has warned for years about these types of donation arrangements, so anyone who continues to engage in them and are re-assessed with penalties get no simpathy from me. It just amazes me the people still find them so attractive.
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Post by Chuck »

The problem seems to be due to the fuzzy nature of "appraised value". I don't have a problem with donating in kind instead of in cash but it needs to be done at fair market value. Fair market value should not be established by the fuzzy subjective opinion of some paid for 'expert'.

In most cases, if the simple question was asked "How much could one go out and purchase the same number of units of a similar object today?" And that value was used to determine the market value, there would be little problem.

Usually, in these schemes, the donator after getting his "appraised value" at two or three times his cost, can go right back to the same supplier and replace his inventory for the same cost. I would argue the appraised value is bogus, regardless of the credentials of the appraiser.
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Post by dagan »

[Restored from backup 2006-07-18]
how can I purchase a print of $100, never receive it, donate it to some charity and claim that it was actually worth $300. Where did the extra $200 come from? If it is worth $300 why are people able to buy them for $100?
I feel we are repeating paths of arguments that have already been travelled by members here, but...

The extra $200 you refer to is profit and full tax is paid on it. You deal with suppliers everyday who buy at $x and sell at $xx where $xx is several time more than $x. It happens a billion times a day and it happens regardless of whether a supplier takes physical possession of the underlying object or service.
As for the points about income trusts, the income is taxed, maybe not today, but it will either be taxed later on disposition.
There is an old adage in tax planning that goes something like this: 'a tax defered is as good as a tax avoided'. But as more direct responses, the full tax is paid on any income from the purchase and donation of assets that you complain about (we have to presume that we are talking within the prior rules - before legislation dictated what the upper value could be). The same is NOT true for income trusts, contrary to your response. Income trusts give out $xx dollars. People buy them in anticipation of this income. They receive the income. But then some shady tax lawyers earn big fees by finding loopholes and other abuses of legislation to argue that only $x is income - some amount many times smaller than the $xx that is received. This can then be repeated and continued indefinitely with only a small future value of the real amount of tax being paid in the future, if at all. The 'taxed later' that you refer to includes capital gains tax which is a PERMANENT preferance to you. Under the current rules, you will never pay tax on 100% of that income. What happened to the obvious answer that a company pays you $XX income and you pay tax on it as income? Positions that exist as common sense when talking aobut charitable gifting, are not applied at all to income trusts. What a scam.

You don't have a problem with receiving $xx cash dollars and not calling it income, and NEVER pay tax on it to the extent that it is the non-taxable portion of the capital gain. But you have a problem with someone buying an asset for $x and then disposing of it for $xx - despite the fact that this happens in a capitalist economy a billion times a day. That is inconsistent.
CRA has warned for years about these types of donation arrangements, so anyone who continues to engage in them and are re-assessed with penalties get no simpathy from me. It just amazes me the people still find them so attractive.
CRA has only recently warned about them and to the extent we are talking about this, I agree with you. But many transactions still predate this and legislation changes but they are caught up in it also. Much of the actions of CRA could be considered trying to apply current thinking and circumstances to things that happened years ago. How would investors feel if income trusts got caught up in this kind of game. for years nothing happens. Then they are warned and legislation is changed and now you have to justify your non-payment of tax on the amounts paid to you.
Last edited by dagan on 02 Dec 2005 15:11, edited 3 times in total.
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Post by dagan »

[Restored from backup 2006-07-18]
Chuck wrote:The problem seems to be due to the fuzzy nature of "appraised value". I don't have a problem with donating in kind instead of in cash but it needs to be done at fair market value. Fair market value should not be established by the fuzzy subjective opinion of some paid for 'expert'.
Who should establish its fair value, if not a trained liscenced professional subject to codes of ethics and conduct? A judge? Whoever has the better lawyer?

What may be even more interesting to you (and maybe others) is to pause and consider the possibility that these grey areas, and fuzzy wuzzy allowances could be argued to have been allowed to actually generously encourage the donation of assets to charities.

Then consider how questionable or even arbitrary it can be to allow for 3% deduction for the capital cost of a building even when it is actually increasing in value. Why 3% versus another rate? Why allowed at all? And when we think about it might even realize that there is a good amount of leeway in what is considered building cost versus land versus expense. I listen to investors argue that this is not a real expense because in the long run real estate increases in value. But this deduction is taken to allow cashflow to be distributed to investors without paying any tax on it.

No, no. Better not to talk about these greay area scams because there are many investors here who benefit from it. Better to talk about THEM, those other things we are safe in calling scams because we were never told about them until they became bad news and warned off, and as a result we never participated.

This is inconsistent.
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Post by dagan »

[Restored from backup 2006-07-18]

To pause and state again for the record. I am against any form of preferential taxation. Charitable gifting and income trusts only exist because of it. Both should be fixed. The same logic should be applied to all of it. The tax arm of the government should not be used to promote charitable giving nor investing in jobs and the economy. The goals should be seperated. Then we can work on approaches that make better and consistent sense.

That is why I was against the I-Bond campaign and stated my preferance for lower general tax rates insteaD.
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Post by dagan »

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Bylo Selhi wrote:Your memory is faulty. The rationale for I-bonds is to encourage people to save without losing most or all of their interest income to the twin bogies: tax and inflation. That's not possible for many people with current CSB rates.
No. My memory is quite good actually. It was pointed out that I-Bonds would mainly benefit the very few who have already maxed out their RRSPs - the most obvious existing answer that addresses the concerns of tax and inflation, although other answers exist. The challenge was to demonstrate why these few wealthy should be given this yet another tax break to the detriment of other worthwhile goals that would benefit many more people. The response was that the proponents should not have to be concerned with this rationale. They were content to simply represent and justify their own interests.
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Post by Shakespeare »

It was pointed out that I-Bonds would mainly benefit the very few who have already maxed out their RRSPs
IIRC, the main justification used by some of us for I-bonds is that it would assist those in the lowest tax bracket for whom RRSPs aren't suitable because the tax rate on withdrawal would exceed that on deposit.

As to whether it would be useful for those in higher brackets - that would depend on the implementation details.
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dagan wrote:Who should establish its fair value, if not a trained liscenced professional subject to codes of ethics and conduct? A judge? Whoever has the better lawyer?
The market if possible. Excuse me if I'm dubious regarding the codes of ethics of professionals who obtain a fee for making the judgement the client desires.

I notice you chose not to comment on my assertion that most donators in these schemes can replace their inventory of donated items at the same or very near their original cost. Do you believe my comment is false?
dagan wrote:What may be even more interesting to you (and maybe others) is to pause and consider the possibility that these grey areas, and fuzzy wuzzy allowances could be argued to have been allowed to actually generously encourage the donation of assets to charities.
Fair enough. I've considered it and consider the practice failing to match the intention. I would rescind these allowances if it were up to me. I understand you are entitled to your own opinion.

Regarding your other points, I agree. However, the focus of this discussion is charity flips. The first party that introduces a flat tax one line income tax calculation will get my vote. Is that consistent enough of a position for you?
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dagan wrote:It was pointed out that I-Bonds would mainly benefit the very few who have already maxed out their RRSPs - the most obvious existing answer that addresses the concerns of tax and inflation, although other answers exist.
Again, I suggest your memory is selective if not faulty. RRSPs address a specific issue: retirement. I-bonds are intended as a general savings vehicle. We often hear that it's prudent for people to have an emergency fund of 3 to 6 months salary. Those who manage to do so, even if they stash that cash at some place like ING or ICICI, will see their fund erode in real value after taxes. A tax-free I-bond, perhaps restricted to some maximum annual contribution or to some maximum account size, would allow people to save money without losing ground in real, after tax turns.

You may be correct that I-bonds may benefit those who have maxed out their RRSPs, but that's beside the point. Even if one taps an RRSP in an emergency, they (a) have to pay tax at marginal rates and (b) cannot restore the money in their RRSP after the emergency passes. Furthermore, those who have such good DB plans that there is no room for an RRSP, can't even tap their retirement savings in an emergency.
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Post by saylavbda »

dagan wrote:
The extra $200 you refer to is profit and full tax is paid on it.


There is an old adage in tax planning that goes something like this: 'a tax defered is as good as a tax avoided'. But as more direct responses, the full tax is paid on any income from the purchase and donation of assets that you complain about (we have to presume that we are talking within the prior rules - before legislation dictated what the upper value could be). The same is not true for income trusts. Income trusts give out $xx dollars. People buy them in anticipation of this income. They receive the income. But then some shady tax lawyers earn big fees by finding loopholes and other abuses of legislation to argue that only $x is income - some amount many times smaller than the $xx that is received. This can then be repeated and continued indefinitely with only a small future value of the real amount of tax being paid in the future, if at all. What happened to the obvious answer that a company pays you $XX income and you pay tax on it as income. What a scam.
For the $200 being income, we are in full agreement if that is what happens, however, from the information I've seen, that is not how it is explained with regards to the flips. Please see upthread where Al says the opposite.

As for the income trust, there is a widespread misconception that income trust et al by out income. They don't, they payout cashflow, a portion of which is taxable income. No shady lawyers, creative accountants maybe. But , AFAIK, the amount of taxable income is no different if it were a corporation or a trust, only the amount of tax changes, and that's a function of the marginal tax rate at play.
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Post by brucecohen »

Who should establish its fair value, if not a trained liscenced professional subject to codes of ethics and conduct?
When I wrote about what might have been the first mass-marketed art flip in 1996, appraisers were not licensed. I don't think this has changed. At the time, a tax lawyer suggested you're safer with an appraisal from a member of PADAC -- Professional Art Dealers Association of Canada (?) -- because this group has worked with CRA in trying to develop standards. But, at that time PADAC membership was voluntary. I doubt that this has changed.
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Post by dagan »

[Restored from backup 2006-07-18]
dagan wrote:Who should establish its fair value, if not a trained liscenced professional subject to codes of ethics and conduct? A judge? Whoever has the better lawyer?
Chuck wrote:The market if possible.
The markets DO set the values set by these. Appraisers submit their evidence of market value. The evidence can be very substantial. The argument mostly becomes one of: Which market? Where?
Chuck wrote:I notice you chose not to comment on my assertion that most donators in these schemes can replace their inventory of donated items at the same or very near their original cost. Do you believe my comment is false?
To be clear, I'm not purposely evading anything. My answer to the above is that that is not relevant. A seller's purchase cost is not relevant.
Chuck wrote:Regarding your other points, I agree. However, the focus of this discussion is charity flips. The first party that introduces a flat tax one line income tax calculation will get my vote. Is that consistent enough of a position for you?
Good start. But I beleive that you are rare to see it this way. Can you see how others will contort to rationalise one argument while summarily dismissing other similar ones as scams?
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Post by dagan »

[Restored from backup 2006-07-18]
saylavbda wrote:For the $200 being income, we are in full agreement if that is what happens, however, from the information I've seen, that is not how it is explained with regards to the flips. Please see upthread where Al says the opposite.
Al (poorly) represents just one example. Even in that example the full tax is paid, Alain has argued that it just happens to be zero. However, I have paid tax on that income and the programs generally FULLY advise it. The working or not working of the program is not a result of tax evasion. The full tax owing (if any) is paid. IMO, it may be that the income from this is more fully disclosed and properly complied with than the return of capital from income trusts which I have rarely seen properly accounted for by non-professionals.
saylavbda wrote:As for the income trust, there is a widespread misconception that income trust et al by out income. They don't, they payout cashflow, a portion of which is taxable income. No shady lawyers, creative accountants maybe. But , AFAIK, the amount of taxable income is no different if it were a corporation or a trust, only the amount of tax changes, and that's a function of the marginal tax rate at play.
You say potato, I say potato. There is a widespread misconception that charitable gifting is not legal. But, No. Contrary to your response, it is not just a matter of the marginal rate at play and taxable income is not the same. I already explained the permanent non-taxable part of the eventual capital gain and you even seem to understand the part classified as return of capital does not form part of taxable income. Otherwise, everything you said about income trusts could be applied to charitable gifting.

Charitable gifting has used legal rules to advantage to reduce taxes similar to income trusts. Income trusts have highly paid lawyers and accountants to create these results. The market has exploded as businesses use these in ways that were never anticipated. Some might even call it unintended abuse of the trust as a form. As a result other businesses have to consider paying lawyers and underwriters to convert to stay competetive.

Maybe you just don't want to see it? When tax lawyers are able to pay investors cash without them declaring it as income, it is a valid advantage and opposition is a result of misconception. But when lawyers produce a tax saving by charitable gifting, it is a scam to you. These may even be some of the same lawyers. But it is only legit when they work for your advantage?

I suggest that the real difference is that one tax planning advantages you and the other doesn't.
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Post by dagan »

[Restored from backup 2006-07-18]
BruceCohen wrote:When I wrote about what might have been the first mass-marketed art flip in 1996, appraisers were not licensed. I don't think this has changed.
Licenced may have been my poor choice of words. The point is that they are fully qualified and members of professional bodies. They are qualified to enough to value assets on divorce and determine FMV of gifted assets for the top wealthiest givers. It is not a matter of poor qualifications in dispute.
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Post by dagan »

[Restored from backup 2006-07-18]
Shakespeare wrote:
It was pointed out that I-Bonds would mainly benefit the very few who have already maxed out their RRSPs
IIRC, the main justification used by some of us for I-bonds is that it would assist those in the lowest tax bracket for whom RRSPs aren't suitable because the tax rate on withdrawal would exceed that on deposit.

As to whether it would be useful for those in higher brackets - that would depend on the implementation details.
No proposal was ever made to restrict this benefit to lower income users. That would have been the logical thing if this was the intention but you cannot show me this. I don't even think that I have to argue very much that it is an obvious benefit for higher earners, specifics of details notwithstanding.
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