Another deadline, another dollar

As I write this column, the April 30 tax filing deadline has come and gone. And, as usual, I am in mild shock.

Personal tax planning and tax management have a natural annual cycle and the logical process is to learn from the mistakes made on last year’s tax return and figure out how to change things so we pay less next time around. Things such as resolving to avoid selling stocks that have appreciated in value before you have to — thereby falling into the trap of realizing capital gains sooner than necessary. When the tax on an investment gain becomes payable, a large chunk of savings has to be shipped off to Ottawa, gone forever and no longer working for us.

This year I resolve only to buy stocks I can hold for the rest of my days. That means good dividend-paying blue chips, common stocks only, of companies that raise dividends regularly. That is why I am such a big fan of Tom Connolly’s investment letter (Connolly Report, 188 King St. E., Cobourg, Ont. K9A 1L5; $35/year). His buy and hold investment strategy fits right in with my plan to defer capital gains tax indefinitely.

Generally, I am not a mutual fund investor. I prefer to buy and hold stocks directly tsave commissions and management expenses and make my own stock selection and transaction timing decisions. So I avoid mutual funds that invest in large cap stocks. I do buy and hold funds that invest in small cap’s because it is just not possible for me to follow and analyze all the good smaller companies. And there are many good opportunities in the small caps.

But watch out for capital gains taxation when you buy mutual funds. If the fund manager is successful and trades heavily, you will likely be saddled with a big capital gains allocation at year end and a hefty tax bill come April. Buy funds where the manager takes a buy and hold approach, just as you should yourself.

As long as the price of oil stays in the $15-$16 U.S. a barrel range, I plan to buy some oil and gas energy trusts. Trusts such as Westrock I and II, Shiningbank, Viking, Enerplus, Enermark and Maximum are maintaining several year’s reserves and yield 13 per cent to 16 per cent at their current depressed prices. Best of all, part of the yield is tax-deferred as long as you hold the units. Eventually, oil prices will rise again and these trust units will yield greater annual income and their prices will increase.

On a different subject, the Seniors Benefit legislation is expected out of Ottawa shortly. It is certainly hoped the program will be modified substantially, including a delay in implementation beyond 2001 and a reduction in the 20 per cent clawback rate based on other pensions and retirement income.

If an announcement is made in time, my June Taxletter for Investors will deal with this subject. If the legislation is delayed, I will deal more thoroughly with the tax aspects of investment products as discussed above, plus a review of the popular new retirement planning book Die Broke by Stephen M. Polan. For a copy of my Taxletter, please send $5 to cover printing and mailing to: Donald I. Beach & Associates Inc., 2555 Highway 7, Greenwood, Ont. L0H 1H0.