Top Ways To Avoid Income Tax – Part 2

This is part 2 of my series on the top ways to avoid income tax. In case you missed part 1, you can read it here.

The Principal Residence Flipper

I have a friend who likes to buy the cheapest house in the best neighborhood. While living in it, he would fix it up and renovate it. After the renovations are complete, he would sell the house and walk off with a gain of $35,000 to as much as $100,000. Then he would move on to the next one. In Canada, there is no capital gains tax on a principal residence (the house you live in).

My friend went around flipping principal residence after principal residence until the government finally had enough and tried to put a stop to it by requiring you to live in your house for at least a year before it can be call a principal residence. This didn’t stop principal residence flippers, but it did slow them down.

The US has a better deal than Canada. Mortgage interest is tax deductible and if you sell your principal residence and buy another one of equal or greater value within 180 days, there is no capital gains tax. It’s a fantastic way for build wealth tax free. When the time comes to finally take the money out, you can do the real estate equity play mention in part 1.

Earn Dividends Instead of a Salary

If you own your company, then you may consider paying yourself with dividends instead of a salary. Depending on the province you live in, you could earn up to $30,000 of dividends per year tax free. This is possible because of the basic personal and dividend tax credit, and the way that the tax rates are calculated.

Another advantage of paying yourself dividends instead of a salary is you don’t need to pay CPP (Canada Pension Plan) or EI (employment insurance) on the earnings. Chances are, the Canada Pension Plan won’t be around by the time your retire so why pay into it if you don’t have to?

The Perpetual Traveler

Canada taxes its citizens based on residence and not on citizenship. If you no longer live in Canada, you are considered a non-resident and therefore not subjected to Canadian income tax. You are a non-resident when you live outside the country for six months plus a day (you can live in Canada for up to 182 days and still maintain non-resident status). You are allowed to keep your Canadian citizenship if you become a non-resident. There are other rules to follow – simply leaving the country isn’t enough. Internet publishers are ideally set up to take advantage of this because we can run our sites from anywhere in the world.

By dividing your time between three or more countries, it’s possible to be avoid all income tax. For example, you can spend five months in Canada and then divide the rest of the time in countries that welcome Canadians without a visa – there are tons of them. The amount of time you are allowed to stay in each country varies. For example, Taiwan lets Canadians stay 30 days visa exempt while the US will let them stay six months. The US actually doesn’t care how long Canadians stay. Every time I go into the US, they don’t brother to stamp my passport.

The US taxes its citizen based on citizenship and not residency. It doesn’t matter where a US citizen is in the world, your income is taxable. However, Uncle Sam understands that if you’re not living in the good old USA, you should get a break. The first $75,000 of income is tax free if you become a US non-resident. This is one of the reasons why Mr. 4-Hour Workweek, Tim Ferriss, is now partying it up in Costa Rica.

Read part 3 here.

44 thoughts on “Top Ways To Avoid Income Tax – Part 2”

  1. We are building our own home and I am blogging about it. I do not have a general contractor and am sub-contracting the work out as needed. We are going to have so much equity that I would like to sell it as soon as it’s built and move on to the next and do the same.

    Your friend is smart john, I hope to do the very same thing once I get enough capital to pay cash for a home to flip so there is no pressure.

  2. Wow — am I really the second commenter?

    Okay, guess I should write something intelligent about flipping houses to avoid income tax.

    Love it.

    I love watching that Flip This House show.

    Mucho deniro.


  3. dcr says:

    Very interesting stuff. Of course, if you don’t like constantly moving or travel, it’s going to be a problem.

  4. Very funny post John Chow. I do believe you forgot or avoided the number 1 way to avoid income tax.Probably should have been in pt 1. due to its illegitimate nature.MONEY LAUNDERING.This basically means buying that condo and claiming its an office and only for business.
    P.S i am against avoiding income taxes since i believe they create social optimum. I pay my dues to society, don’t believe me, check a

    1. John Chow says:

      Money laundering is illegal. I only list legal methods. And if you think buying a condo and claiming it as an office for business is money laundering, then you’re not a money launderer. Hmmm, maybe I’ll do a series on how to really launder money.

      Good to hear that you don’t like to avoid tax. I guess you don’t have any RRSP, IRA or 401K, huh?

    2. Lewis Empire says:

      If you’ve got some extra money, I could use some social optimum.

      I believe it’s in everyone’s best interest to pay as little tax as they can. The government has set up rules for a reason and, based on the discussion here, there is no rule breaking going on. Getting money back for capital gains or by borrowing against your equity does not mean you don’t pay taxes; it means that you are legally enjoying your money.

      If you want to create social optimum, why not try to shield as much income as you can, save on your income taxes, then make donations to charities that YOU choose (rather than the government lobby-motivated options)?

      1. Simon says:

        Amen to that. Keep it up John, I’m loving these posts. I was getting a little bored of your blog with all those pictures and stories that have nothing to do with us :mrgreen:, but this is great.


  5. This is great advice. I’m glad I read it!

  6. Jack says:

    You could also form a fake mining company, salt the gold and then sell stock. And then not get charged for it. Bre-X anyone?

    1. Lewis Empire says:

      One guy got charged. Today he was found not guilty! There was no way to prove that the $84,000,000 he made in Bre-X stock a week before the collapse was insider trading.

  7. says:

    A “joke post” on money laundering would drive some serious traffic. Let the hustle begin! 😉

    1. John Chow says:

      The term money laundering means to make illegal money legal. The last time I check, employment income, business income, income from interest and capital gains were all legal. Mr. Strongfams needs to stop watching TV cop shows and believing what they say is real.

  8. Single says:

    What about kids if any? If I were alone I would love to travel. Would my kids be accepted into the local school in Costa Rica for 5-6 months and then in some other country?

    1. John Chow says:

      That is possible but what most would do is arrange for private teachers in each country, or have a teacher travel with them.

    1. Nathan Roe says:

      Agreed that is very helpful. Thanks for posting that link!

  9. Nathan Roe says:

    This will be very useful especially since i am begining to spend large amounts of $ of my business

  10. Johnny says:

    I can’t wait for part 3, this is great advice.

  11. Bob says:

    I’m a total idiot when it comes to this type of stuff, but what is the right type of professional to talk about your options with?

    Business Manager? Accountant? Lawyer?

    1. Lewis Empire says:

      Depending on the situation you should talk with all three.

      An accountant will help you reduce taxes as the happen and help plan your business/personal financial structure to optimize your taxation.

      A lawyer will help you set up legal options such as a Limited Company, subsidiaries or a Family Trust to further avoid large capital gains or estate taxes.

      A business manager should help you with planning your strategies on growth and more money making!

      Depending on your situation you may also want to talk with an investment adviser, broker or estate planner.

  12. Lewis Empire says:

    Hey John. This is a great post but I have one question/comment. For the average Joe who needs to work more than 4 hours per week, it may be difficult to travel for 7 months per year with no income. spending 5 months in Canada then traveling to Taiwan and the USA for the rest of the year may stretch the budget a little.

    The savings from taxation would be WAY lower than 7 months of income!

    1. Lewis Empire says:

      OK, so I forgot the question… How about, isn’t the requirement that you live outside of Canada for 24 months AND sell your major assets within the country to get rid of taxes?

      1. John Chow says:

        The full rules are here.

        No, you don’t need to be away for 24 months.

    2. John Chow says:

      The Perpetual Traveler route really isn’t set up for people with jobs or localized business. Like I said, it’s ideally setup for people with Internet based businesses.

      The easiest way is to just spend 5 months in Canada and 7 months in the US. It’s not like they stamp your passport. LOL

      1. Lewis Empire says:

        So where do you spend your 7 months? Somewhere nice and hot I hope!

        1. John Chow says:

          I am still a Canadian resident. I have too many “residential ties” to Canada at this time. It would take a while to get rid of.

          But if I were to become a non-resident, I would divide my time between Vancouver, Las Vegas and parts of Asia.

  13. bob cobb says:

    Sort of makes me wish I went into accounting instead of business. 😥

  14. Angel says:

    Interesting, but not really my cup of tea just yet.

  15. Jose says:

    So is Costa Rica very popular in Canada? is it because it’s warm and tropical unlike canada? i am just wondering, i am from costa rica and the last time i went there i met more Canadians than American tourists, i was very surprice to find people from so far way there having fun in all the beaches in costa rica, I even met this guy who claimed he was from Victoria BC and that he dia in fact surf the Victoria coast.


    1. John Chow says:

      Ya, Costa Rica is very popular with Canadians. Lots of Canadians retire down there.

  16. Jeff Kee says:

    HA HA HA

    The last paragraph made me laugh – I am incorporated in Costa Rica now,

    and a lot of my income comes in the form of dividends through this new business venture I’m involved in.

    Also there are other tax loopholes I can expose to get 5 figures into Canada without paying tax in neither Costa Rica OR Canada.

    1. Care to share those loopholes? 😉

    2. Jack says:

      I’m interested as to how you plan to tell the CRA that the income you are gaining from these dividends is not from a FIE and that they don’t need to tax it.

      1. Jeff Kee says:

        Oh no, the dividends are taxable… but some other $$$ can be concealed. But up to a certain amount… it involves US bank accounts etc. Confirmed this with a reputable lawyer in Costa Rica.

  17. More of this please… 😎

    1. ForumeR says:

      You can read Part 3 now , it’s all free 😉

  18. HMTKSteve says:

    I guess it’s time to build that big border fence along our northern border. We can’t have all those crazy Canooks living in the US for free! 😉

  19. Wow, that’s pretty harsh – taxing US citizens abroad.

    One Man. One Year. $100,000 online. Taxed at home or abroad.

  20. Ma2T says:

    Great post(s) John.

    I knew about the 1/2 a year out of the country method. Im English, and my girlfriend who I run the online business with is Danish. Splitting the time between England, Denmark and a third country is tempting indeed.

    The offshore banking is also very interesting, I can get to Jersey easily….

  21. Nick says:

    John, what are your thoughts on the US vs. Canada vs. the rest of the world for online business owners.

    I think a lot of your readers (myself included) are 100% web based, and would like to hear your thoughts on the pros and cons of where you keep your primary residence.

  22. Nick says:

    I hope this becomes a regular topic here on

  23. bob cobb says:

    Do you have to become a c corp in canada to issue dividends like you do in the US? In that case, you’ll have to pay corporate taxes and then pay capital gains taxes when you issue the dividend.

  24. This is an interesting series.. John can now begin to own the niche on tax avoidance.. truly evil..

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