a —

16'- Fridsy, March 2, 1984 - North Shore News

ET’S LOOK at money, or income, in a new.
way — a way that may be a revelation to
some people. Surprising as it may seem, all

income (money) is not equal. You can keep more —
or less —- of every dollar of income which comes in-
to your hands, depending on what you do with it,
depending on how you invest it.

We are writing about after-
tax dollars, or after-tax in-
come; that is, the money you
actually have in your pocket
to save Or spend as you wish
after the tax man has taken

his cut. You see, he will take -

more or less of your income
depending on how it is
classified, depending on how
you have earned it. Knowing
that, you can direct your
investment money into those
channels where the tax treat-
ment is less severe, and con-
sequently wind up with more
money in your pocket.

$$$
Let us consider three dif-
ferent kinds of income:

employment or normai in-
come, capital gains, and divi-
dend income. Normal income
includes your salary or wages
and interest income; that is,
interest from bank or credit
union savings, from bonds,
and from term deposits and
guaranteed investment. cer-
tificates, etc. A capital gain is
the sum of money that is the
difference between what you
paid for a capital property
and what you sell! it for; in-
other words, your profit on
selling stocks, bonds or a
house. A dividend income is
what you receive in cash
dividends from your average
tax-paying Canadian com-
pany. (NOTE: Interest from
bonds is interest income; pro-
ceeds from the sale of a bond
may be a capital gain.)
$$$

Each of these three forms
of income is treated quite dif-
ferently by Revenue Canada
and the results can be
dramatic tax savings for you

Standard income for exam-
ple, 1s taxed at your personal
marginal tax rate, whether 1
is 20 percent or 40 percent
The tax rate, of course, tn-
creases in accordance with in

creases in your taxable
income.
However, only half of

capital gains income 15 taxed,
consequently capital gains
will leave you wth more after
tax dollars than
income

Dividend tncome in most
cases is the best of all three
forms of income, cnabling
you to save more after-tax
dollars than capital gains.
The tax man applies a unique
treatment called the ‘*gross.
up and tax credit’ formula to
dividend income, whether the
dividends come from com
mon or preferred shares.
While tt 1s complicated, it can
work magic in your favor,

intcrest

PER
FREE NORTH SHORT
PICK UP AND OLIVE FLY

Beat the rush Cat

GWEN ANTAYA

‘i

p

particularly for the investor
with lower income.

Indeed, the lower your tax-
able income up to a certain
point, the more ‘‘gross-up
and tax credit’? works for
you. At certain income levels
you will receive your
dividends free of taxes — and
at an even lower level you
may even get a fax refund.

$$$

The first step in calculating
your dividend tax credit is to
increase your taxable income
by 50 percent; for example,
for every $50 of dividend in-
come you must add $25 (50
percent) of your taxable in-
come. That’s the gross-up.
(Don’t fret. It all works out
to your advantage when you
reach the bottom line!)
Under the rules, you are then
allowed to over-compensate
for the gross-up by deducting
more than the $25 from your
taxes. This ts the dividend tax
credit.

As we stated above —

complicated, yes! But when
the bottom line appears, you
have saved money.
This illustrative chart com-
afes.the taxés you pay and
thegdollars you save as bet-
ween interest income, capital
gains and dividend income:

Income
Gross-up
(50% of $1,000)

Taxable Amount

Tax (assume 40% raic)
Dividend Tax Credit

Net Tax

After Tax Income
(you keep!)

This unique treatment of
dividend income leads to
some very interesting situa-
tions and tax positions. For
example, if your only income
1s dividend income you could
carn up to. approximately
$40,000 and pay no income
tax’ Investors with taxable
income below about $40,000
get most of the advantages of
the gross up and tax credit.

It «8 @ remarkable
equalizer Dividends paying
you (yiclding) only about 7 of
8 percent will return you as
many dollars after taxes as
interest rates of about 11 or
12 percent — which means
that moving your interest mn
vestments to dividend-paying
investments may — increase

TOGETHER

$9 500

hety ss a week tt G9 pm

986-5560

INTEREST GAINS

$400
None

$400

$600

your after-tax income.

Aside from. everything
stated above, remember the
first $1,000 of investment in-
come is tax-free in any event.
Thus after the first $1,000 of
investment income, your
investment/tax strategy
should perhaps be to concen-
trate first on dividend in-

SSE SQN

TS

Bill Ryan

come, then capital gains, and
finally interest income.
$$$

If the last section of last
week’s column about RRSP’s
puzzled you, there is good
reason. The proof reader fail-
ed to catch a missing word,
namely ‘‘forward’’. The last

CAPITAL
DIVIDEND
$1,000

500

$500 $1,500

(only one-half of gains

is taxable)
$200
None,
$200

$600
$500

$100

$800 $900

paragraph should have read:
**Another good feature of [he
proposals, particularly for
younger Canadians, 1s that
everyone will be allowed to
carry forward unused RRSP
contributions .. .”’

TELEX FOR

SIN «=
month

Do you need TELEX but
don’t have the volume
to justify your own
equipment?

Let us halp you with:

© Wortdwide ¢ Omemmunic align

© Teles number for your
business slabonery

Fn UMIng messages phoned
TO YOU Vpn rec eng!

® Reasonable message | onts
(CHarged por full cnaites

* Like Naving your Gwe ues
house TEit x Departenent

CALL & COMPARE

Westwind
Services
987-8327

Even if you haven't met them personally, you see their pictures almost every week
in the Sunday News. All of them, and other real estate agents, understand the tm-
portance of selling themselves at the same time they advertise their listings.

Our photographers are already taking pictures of your listed homes — we want to

take your photograph too, and give your ad the touch of personality that can help
attract readers and clients

The Wednesday and Sunday News offer total coverage of North and West Van
couver while our Friday edition \s targeted to a selected audience

Each Friday edition will be
delivered free to North Shore
businesses, to high pedestrian
traffic areas (hotels,
neighborhood pubs, recreation
and fitness centers, tennis
clubs, yacht clubs, country
clubs, lodges, high schools and
more), and will be available for
sale in 95 vendor boxes and
newsstands (the majority on the
North Shore}

The Friday News ts a realtor’s
dream Call me today and I'll
give you the whole story about
this untque marketing
opportunity

Tim Francis
Advertising Director

980-0511

Frek WAAR OF MEITTH Ate WEE T ¥ Af OUIWERR

sunday |

news

north shore

news