RETIREMENT PLANNING

17 ~ Sunday, January 21, 1990 - North Shore News

Beware of spousal RRSP hitch

BEWARE THE three-year rule when you take money out of

a spousal RRSP.

That warning comes from a cer-
tified general accountant who deals
with financial planning for retire-
ment.

“You have to plan ahead when
you use spousal RRSP,’’ the CGA
said. ‘*Ideally, the spouse who is in
the higher tax bracket and expects
to have higher income after
tetirement contributes to the

lower-income spouse’s RRSP.

“*The higher-income spouse gets
the larger tax break on the con-
tribution and the moncy eventually
comes out in the hands of the
lower-income spouse, who — then
pays back less tax.”’

If the Jower-income spouse
withdraws funds from the spousal
RRSP as cash, this money will be

Dont let AMT

catch you

YOU HEAVE a sigh of relief. You
have done your financial planning
carefully and expect to pay little or
no tax on that capital gain or sev-
erance pay which you rolled over
into your RRSP.

You file your tax return — and
are shocked when Revenue Canada
Teassesses you with a notice that
you owe several thousand dollars
thanks to the AMT calculation.

That Alternative Minimum Tax
often catches taxpayers unaware,
and can be an expensive shock
especially if you don’t actually
have extra cash in hand, as could
be the case if you rolled severance
pay or a retirement allowance into
your RRSP.

“Under the AMT, you must add
back some of the deductions ot
exemptions you claimed on your
regular return,"’ said a certified
general accountant who regularly
prepares personal and business tax
returns.

“If the adjusted taxable income
exceeds the AMT exemption of
$40,000, a federal tax of 17 per
cent plus the provincial tax is ap-

off guard

plied to that excess.

“Then, you must pay that
amount — unless your income is
so high that the regular tax you
owe is higher than the AMT
amount.”

The CGA stressed the impor-
tance of calculating the effect of
the AMT before making decisions
about taking capital gains, plan-
ning tax shelter investments, ar-
ranging severance pay or retiring
allowance payments and so on.

*‘Sometimes, you can avoid or
at least minimize the AMT by
splitting these add-back items over
two years, or postponing them to
the next year — depending on a
variety of factors,’’ the CGA said.

“Splitting capital gains between
individuals in certain situations can
also lower or eliminate the tax.’’

If you do have to pay the AMT, |

you might get some tax relief in the
future when you may claim a cred-
it to reduce an excess of regular tax
over the AMT tax payable in any
of the following seven years, the
CGA added.

Choose the right adviser

HOW DO you choose a good fi-
nancial adviser?

“I feel it’s important that client
and adviser feel comfortable with
each other — whether you are
talking to your banker,
stockbroker, mutual fund
salesperson, accountant, insurance
agent or other adviser,’ said a cer-
tified general accountant who has
a variety of personal and business
clients.

‘Make sure you are dealing with
somebody who can give you the
kind of help you need.

“An accountant will probably
be your first choice for tax advice,
a banker will help you with loans,
and a broker, investment
counsellor, fund salesperson or
perhaps real estate agent could
assist you to develop and imple-

Articles prepared by CAs
THE ARTICLES ln Money Mates were prepared by the Certified

For further isformation, the association can be reached at 1555
West 8th Ave., Vancoaver, B.C, V6J 1T5 or by telephone at 732-1211.

ment an effective investment strat-
egy.
“*You could well rely on more
than one individual — your ac-
countant would advise you on the
tax aspects of your investments,
for example.”’

The CGA said it helps if an in-
dividual or business person pro-
vides a brief written summary of
his or her financial situation —
‘sort of a snapshot of assets and
liabilities, approximate income and
expenses, and the sort of help re-
quired.”’

Ask the adviser to feed back to
you what he or she understands
your wants and needs to be, just to
make sure you are both on the
same track,

See Contact
Page 18

considered the income of that
spouse only to the extent that the
higher-income spouse had not
made any contributions to any
spousal plan in the last three cal-
endar years.

In other words, if lower-income
spouse took out $10,000 but
higher-income spouse had con-
tributed $8,000 to any spousal plan
during the previous three calendar
years, $8,000 cf the $10,000 would
be attributed back to and have to

be declared by the higher-income
spouse.

ff the spousal RRSP is turned
into a registered retirement income
fund (RRIF), the three-year rule is
waived as long as only the mini-
mum amount is withdrawn from
the RRIF. The three-year rule will
apply to any amounts above the
minimum.

The three-year rule is also waiv-
ed if the RRSP is turned into an
annuity, provided the annuity is

not then cashed.

‘*You can see how important it
is to plan your spousal RRSP
strategy carefully, so you can take
full advantage of all the tax sav-
ings and not inadvertently lose
out,” the CGA said.

“That's why it’s so important to
get good advice both when you put
Money into such a plan and well
before you want or need to take
the money out again.”’

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