48 ~ Wednesday, August 7, 1991 — North Shore News

BUSINESS

Tax tips and traps:
Ways to split income

SPLITTING AND. shifting
can certainly lead to saving
as we continue our suminer-
time series of tax tips and
traps.

Splitting or shifting income to
family members in lower tax
brackets lowers the family’s total
tax bill, leaving more meney for
debt reduction, investing or simply
spending.

The most common example is
contributing 10 a spousal regis-
tered retirement savings plan if the
recipient will be in’ a lower tax
bracket than the contributor when
the money is withdrawn, (This tip
and related tips were discussed in
last week’s column.) But there are
also other ways to split income.

Note that these suggestions,
from Elio Luongo, senior manag-
er with Peat Marwick Thorne,
chartered accountants, are general
in nature and that the rules
change constantly.

Also beware GAAR (the general
anti-avoidance rule). Be sure to
check how this information ap-
plies to your situation and
possibly seek expert advice before
taking any steps.

*TIP: Pay a lower-income
spouse and children to work in
your business, which could include
tevnnue property. By shifting this
iicome out of your hands, you
can realize tax savings of up to
almost 50%,

Let’s say you are in the top tax
bracket and pay your children to
help with mass mailings or chan a
rental place between tenants. If
you pay two children $2,000 each
and they had litde or no other in-
come, you could save close to
$2,000 tax a year.

Paying a spouse would enable
the spouse to put more into an
RRSP and io contribute more 3
CPP toward increasing future
benefits.

TRAP: You must justify the
amount of the pay and the
spouse/children must actually do
the work. You increase the
amount of bookkeeping: there
must be a clear paper trail (you or
the business must actually writ.

Michael
Grenby

DOLLARS AND SENSE

the cheques) and beyond = the
threshold amounts, you must col-
lect and remit income tax plus
CPP and possibly UIC premiums.

Depending on the level of the
spouse’s and children’s income,
you might also lose the tax credits
you were claiming for them as
dependents. Your tax bracket will
determine whether income-split-
ting will produce a net tax saving.

* TIP: The spouse with the
higher taxable income should pay
all the bills — both monthly and
irregular household expenses, as
well as all income taxes. The other
spouse should then do the in-
vesting so investment income will
be taxed at that spouse’s lower tax
raic.

TRAP: Having separate ac-
counts could cause legal problems
and expenses if the marriage
breaks down or there is a death.
While joint accounts are simpler
to operate and often minimize
those problems, you might have a
harder time convincing Revenue
Canada of whose money was used
for what.

© TIP: Give or lend money to
the low-income spouse. The high-
income spouse must declare the
initial, first-generation investment
income. But when this investment
income is reinvested the fower-
income spouse wil! declare the
second-generation income.

(Example: Husband lends wife
$100,000, Husband declares
$10,000 income. Wife reinvests the
$10,000 and declares the $1.000
earned on this money. Over the
years, wife — instead of husband
— declares ever-increasing —in-
vestment income.)

TRAP: This) can eget com-
plicated and demands accurate re-
cord-keeping. And see the notes in
the previous “‘trap'’ about sepa-
rate rather than joint accounts.

© TIP: Transfer to a spouse
with no income, property that will
produce high income and/or in-
crease in value in the future. In-
come will be reported in the
spouse’s low tax bracket; the
spouse can make use of the capital
gains exemption.

TRAP: So this future income
and capital gain) won't be = at-
tributed back to the high-income
spouse, the property must be
transferred for ‘‘payment’’ (al-
though this need not be in cash) at
the fair market value. The low-
income spouse could buy the in-
vestment with a summer cottage,
share of the principal residence or
other asset.

If the purchase is with a pro-
missory note, it must have market
value terms and rates. Note that
the high-income spouse would
have to declare any gain when
selling the investment to the low-
income spouse.

¢ TIP: A spouse and children
could become shareholders of a
small business corporation. If they
had no other income, they could
then receive up to $23,000 of div-
idends tax-free. Setting up a fami-
Sy trust would be another way to
shift income.

TRAP: You face both setup
and ongoing legal and accounting
costs — and possibly tax penalties
unless these arrangements meet all
the requirements. Get professional
advice.

Mike Grenby is a Vancouver-
based columnist and independent
financial adviser who works with
individuals; he will answer your
questions as space allows in his
column — write to him c/o North
Shore News, 1139 Lonsdale Ave.,
North Vancouver V7M 2H4.

NOTICE TO MOTORISTS /PEDESTRIANS
CASSIAR CONNECTOR PROJECT
HASTINGS STREET REALIGNMENT

Effective August 10/11, 1991 (weather permitting) the Hastings Detour (West of Cassiar
Street) will be closed and Hastings Street will be realigned to its original location.

Expect Delays.

After Hastings Street is realigned the ban on left turns in the intersection will be lifted.

Your cooperation and understanding regarding this matter is appreciated.

GEORGE DEAN

CONSTRUCTION MANAGER
FENCO LAVALIN CORP.
PROJECT MANAGERS FOR THE CASSIAR CONNECTOR PROJECT

For futher information, please call the Ministry of Transportation and Highways Road
Repoit Information System 525-4997.

PROVINCE OF
BRITISH COLUMBIA
MINISTRY OF TRANSPORTATION

«28 2 6

AND HIGHWAYS

HONOURABLE LYALL HANSON, MINISTER

RATE SUBJECT TO CHANGE

5 YEAR
TERM DEPOSIT

983-3773

Lonsdale Quay
Next to Seabus
North Vancouver
24 Hr. Quote Line 682-4636

F Citizens Trust

MEMBER CANADA
DEPOSED INSURANCE CORPORATION

66 This is our SOth year serving your community. We'd like
to celebrate it with an anniversary term deposit special.
It's a 50 month term, non-redeemable. $10,000 minimum.
term deposit at 9.75% per annum -~— you won't find a better
rate on a 50 month term. And we'll give you a $50 bonus
for opening the deposit plus $59 for every additional $5,000 of
‘new’ money — funds not currently with us— over the
minimum. Sound good? It is. So good we're limiting the
number of these anniversary term deposits. If you're
interested, you better hurry — the offer could end or rates
could change without notice. 99

NORTH SHORE
CREDIT UNION
Fyitas ingen Community:

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