Graycliff Financial Corporation: How to Keep Your Bank Account Safe from Garnishment and Reduce Income Taxes

Procedure for Employees to get Salary Tax-free

Please note: this procedure does not require the actual transfer of salary to Graycliff. All "transfers" of funds ("payments" and "loans") can be done merely as bookkeeping entries and signed documents.

Our twenty-five-year-old time-tested method consists of the following steps:

Step 1. You become a leased employee (that is, an employee working through a service corporation). This means that you work at your present place of employment through one of our companies (Graycliff). So you become an employee of one of our companies, and we provide your services to your present employer. This is done in the same way a temporary-services company provides the services of a temporary worker to a business that needs an additional person temporarily.

Step 2. Your salary, including an amount for the employer's share of payroll deductions, is paid by your current employer to you in trust for Graycliff, the company that provides your services to the business where you work. (With a leased employee, when the business that currently employs you pays your salary, there are no payroll deductions.) This means that although the money goes from your current employer directly to you, it notionally passes from your current employer to Graycliff, and then to you. (From an income-tax-law point of view, it is considered to be Graycliff's for an instant.)

Step 3. When you receive the money in trust for Graycliff, Graycliff then lends this money to you, with the loan being secured by an assignment of your salary that Graycliff owes you. (This lending of money is done notionally, insofar as it happens instantly, and is recorded as a bookkeeping entry.) In other words, Graycliff owes you a salary for the work performed, but instead of paying you a taxable salary, it lends you the money as a loan. And the security for the loan is the legal obligation by Graycliff to pay you the salary, i.e., a wage assignment. So after the transaction is completed, you owe the loan to Graycliff, and Graycliff owes the salary (of equal amount) to you. So the net effect is no one really owes anyone anything. But you have gotten your money from the business where you work tax-free. Any interest charged on the loan by Graycliff is offset by equal interest charged by you on the unpaid salary. And this all happens instantly as you receive your pay.

Since you never receive your salary (other than as a loan), you never owe any income tax on it.

Remember that your current employer always pays your salary directly to you, not to Graycliff (unless you have some reason for Graycliff to be a financial intermediary). The lending of the money to you by Graycliff is done by bookkeeping entries that show that the money you received from your current employer is transferred from being held in trust by you for Graycliff to being lent to you by Graycliff. And this is done instantly, as soon as you receive it in trust.

Since you are receiving a loan arising from your employment, you would normally be deemed to have received interest at a prescribed rate (currently about 5% per annum) for income-tax purposes [The reason for this is set out in IRS Publication 535, referred to in the "USA" tab in the left column of this web page. In Canada, the authority for this is Section 80.4(1) of the Income Tax Act]. However, since the interest rate would be at market rates for such a loan, no deemed interest arises for income-tax purposes [Again, see IRS Publication 535. And in Canada, the authority for this is Section 80.4(3) of the Income Tax Act]. This is so even if the interest is never paid. And since the interest on the loan is equal to the interest on the salary owing, one offsets the other, and so there is no net accumulation of interest debt. And the net effect is no one owes anyone anything. So, you do not have any outstanding debts that have to be paid at a future date.

This eliminates your obligation to pay income tax. And you are left with no obligation to ever pay anything to anyone.

To see a technical explanation showing how this works, click here.

Unemployment Insurance

Please note: By using The Graycliff Way, one gives up access to Unemployment Insurance benefits for the periods that one is laid off.

The minimum period of employment to be eligible for Unemployment Insurance benefits varies from area to area, and the length of time that one can collect depends on how long one was working and the area in which one lives.

Unemployment Insurance benefits are subject to payroll deductions.

But is this all possible? What do income tax authorities say about this?

To find out, go to the web site of Canada Revenue Agency to see an example of a taxpayer using a system similar to ours, at the the following links:

Loans received because of employment

Example of calculating the taxable benefit

These pages show an example of a taxpayer receiving loans of $150,000.00 instead of salary, and his tax liability for the year is nil because his income is only $1,500.00, well below the taxable minimum. So, even Canada Revenue Agency acknowledges that one can receive a good income without paying any income tax.

And the income tax laws in the US on this issue are similar, so the result in the USA is the same as in Canada.

How Much Does It Cost?

How much does Graycliff charge for saving you money? 7% of your taxable income. In other words, $3,500 on earnings of $50,000 (instead of $12,000 to $16,000 income tax), or $7,000 on earnings of $100,000 (instead of $28,000 to $38,000 income tax).