42 - Wednesday. September 5, 1990 — North Shore News BUSINESS Parents can benefit from tax planning PARENTS OFTEN help their adult children financially, and this may present the opportunity for the parents to help themselves in the process. Here’s where a fittle tax planning can go a long way. “Income splitting. debt management, RRSP planning — all can be involved to produce results that benefit everybody in the family,”* said Elio Luongo, senior tax manager with Peat Marwick Thorne, chartered ac- countants. Luongo has prepared a situation to illustrate just some of the planning possibilities. ‘°‘This is based on a real life example, so it reflects what is actually happening today,’’ he said. Note: The following example (which uses the combined feder- al-provincial tax bracket rates of 27, 40 and 46 per cent) illustrates various strategies aimed at saving as much tax in one year as possi- ble. “Effective planning takes a much longer view, so it’s impor- tant to look at your particular sit- uation over the long term and possibly seek professional advice — especially in a case like this — before you take any tax-saving © Columbia Michael Grenby DOLLARS AND SENSE steps.’' Luongo said. “Also realize that depending on the circumstances, Revenue Canada could use its general an- ti-avoidance rule (GAAR) to disallow certain tax planning techniques."” John (it could just as easily be Joan) has been talking to son Bill (or daughter Beth), 27. about Bill's plans to set up a reeyeling business, John tas $100,000) in savings, which is approximately the amount of capital Bill needs. John also kas $100,000 in his RRSP which he usually invests in mortgages and T-bills. Son Bill still has $100,000 of the mortgage he took out to buy his home. Bill could borrow the capital he needs from the bank. Or — pro- vided John is prepared to take the tisks involved in starting up a new business — he could fend his son the money. Consider this ap- proach for maximum tax benefits: @ tf John instead of the bank provides the financing, son Bill can split profits from the business with his father —- which then gives John a chance to earn a premium return on his funds. © Bill could convert his non- deductible mortgage interest to a deductible expense. ¢ Splitting income between John and Bill could produce a lower tax bill. Luongo suggested the following A Special Opportunity for You to Register. Do you have this card? This card means that you are registered to vote ata Provincial Election, based on the address printed on the card. You must be a registered voter to vote. 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Chiet Electora’ Office Province of British Columbia three steps: (i) John lends son Bill the $100,000 from his (non-RRSP) savings to pay off Bill's merigage. (2) To provide funds for his new business, Bill borrows $100,000 from John’s RRSP, which would take back a = mor- tgage on Bill's home as security. Because this is a business invest- ment loan, Bill may deduct the in- terest, saving him $3,200-$5,000 tax a year, depending on the in- terest rate and mortgage terms. (3) Bill and John would form a corporation to run the business. Bill and John would each own half of the corporation’s shares. John could then be paid dividends or income, depending on how the business ownership was struc- tured. Now, Bill is paying the interest on his business investment mor- tgage loan to his father’s RRSP instead of to the bank. “In effect, profits from the business ure being used to help repay the loan — and this money js being tax-sheltered in John's RRSP.” said Luongo. “John has personally fent his son another $100,000 which was used to pay off the original mor- tgage on son Bill's home. But John is now co-owner of the business and entitled to half its profits."* Luongo suggested Bill might not take a salary, since the business is paying the interest expense on the mortgage. Bill will still collect half of any profits. In the above arrangement, Bill is actually charging his company interest on the $100,000 mortgage loan. This interest income Bill receives is offset by the interest income Bill pays to his father’s RRSP. Luongo repeated his warning about the risks involved: ‘‘If the business fails, both John and Bill See Look Page 43 ** Business Opportunities t your ., Do orstep” Cc ON FE R E—E N C ECE For those interested in starting or expanding a small business. Saturday, September 22, 1990 8:45 a.m. to 5:30 p.m. at the Canadian International College North Vancouver Hear successful entrepreneurs share their success stories and identify local business opportunities. SEMINAR TOPICS Tapping the Visitor Market Identifying Business Opportunities Specialty Retailing to Target Groups Opportunities in Specialty Foods Opportunities in the Environment Industry Business Opportunities in Fashion Products Arts & Crafts as a Business Servicing the High Technology Industry Presented by: Honourable Stanley B. Hagen Minister of Regional and Economic Development In Cooperation with: Honourable Jack Davis, MLA - North Vancouver - Seymour Honourable John Reynolds, MLA - West Vancouver - Howe Sound Mr. Angus Ree, MLA - North Vancouver - Capilano For more information or to register: North Shore Economic Development Commission 148 East 2nd Street North Vancouver, B.C. V7L 1C3 Phone: 984-3580 BZ $b Small Business AEGUR GL ABEND ANG ELOMERED OH af Putt