ne * BUSINESS Income-splitting can reduce your return DID YOU pay too much tax in 1990? If you have immediate family members in a fower tax bracket, you might be able to cut the family’s 1991 tax bill. Michael Grenby DOLLARS AND SENSE Shifting income to family members in a lower tax bracket is commonly known as income-split- ting. This year’s federa? budget left most tax-planning approaches untouched. But as the rules can change at any time, even between budgets, each year you should review the various ways to split/ shift income. Use the shock of your 1990 tax bill — especially if Otawa ‘‘claw- ed back”” any family allowance o1 Old Age Security pension — to motivate you to split income: mark any of the following strategies that could apply to you. *Spouse in the higher tax bracket pays all the bills; spouse in the lower tax bracket doés all the investing. This way, the in- vestment income will be taxed at a jower rate. Higher-income spouse can even pay lower-income spouse’s income taxes, whether quarterly instalments or any amount owing when tax return is filed. eff one Spouse is working to put the other through school, document the amounts spent on schooling and other expenses as a loan. Let’s say the wife puts her hus- band through school, then quits work outside the home to raise a family. At this point, she proba- bly drops into a lower tax bracket. Now, the husband who is in the higher tax bracket, can repay the loan — providing his wife with funds to invest at her lower tax rate. The schooling loan doesn't have to bear interest. elf you give money to a spouse or lend funds to an adult child or parent (because the spouse, child or parent is in a lower tax bracket), you must still declare the interest, dividends 2nd capital gains earned by that money. So give or lead money for non- investment purposes, freeing up the lower-income family member's own money for investment. Example: Lend your college child money to pay education costs. Then the child can save and invest money earned which would otherwise have gone for schooling — and probably pay little or no tax on the investment income. ® Pay a spouse and other family members in a lower tax bracket to work in your self-employed (full- time or part-time) business, which includes any revenue property you own. eThe annual RRSP season is aver, but now is the time to be making your 1991 RRSP con- tributions — and putting money into a spousal plan if your spouse is likely to be in a lower tax bracket than you when the funds are withdrawn. ¢Give or fend money to a spouse to shift second-generation income. If you give or lend your lower-income spouse $50,000, you must report the $5,000 interest earned. But your spouse can then invest that $5,000 in his/her name, and the second-generation investment spouse’s name and bracket. Repeat this each year to build income in your lower tax Hugh STARK Authors of Domestic 1620 - 808 Nelson Street _ & __MACLISE MATRIMONIAL LAWYERS Custody - Maintenance - Property Division tAarriage and Separation Agreements Over 30 years combined experience Vancouver, B.C. (Nelson Square) up the compounding second- generation investment inconte in your spouse's name and lower tax bracket. e Put the child(ren)’s family al- lowance into an account or higher-income investments in the child(ren)’s name(s). The income Kirstie Contracts - a book on 682-4999 Wednesday, March 13, 1991 - North Shore News - 13 earned by these funds will be con- sidered the child’s for tax pur- poses (although the parent mus! still declare the family allowance payments as income). © Split the Canada Pension Plan RATE SUBJECT TO CHANGE Pension once both spouses have reached age 60. 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