MINIMIZING per-

sonal income taxes
continues to be a
favourite topic of per-
sonal-finance conversa-
tions.

__ While it’s no secret that

Revenue Canada has gradu-
vally reduced the number of

legitimate tax-saving strate-

‘gies for taxpayers, this does-
n’t. mean people should

-_. abandon sensible and legal

: means to reduce their eax

ness, many family-run ven-
tures took advantage of tax
reductions by splitting
income among participating
family members.

Successful firms and
incorporated professionals
also used family trusts to
reduce their tax bill by
extending taxable income
into the hands of children
and other family members.
Sadly, this strategy fell victim
to a Revenue Canada torpe-
do when changes to the tax
code were introduced with
the 1999 federal budget.

But despite these
changes, there are still some
ways to reduce taxes through

splitting income among your
ily members.

north shore news

BUSINESS
pitting can reduce taxes !

The strategy behind
income splitting is simple:
you shift income from an‘
individual in a high cax-
bracket to
one ina
lower tax
bracket. As a
result, you
pay less tax
and therefore
retain more
family income
and capital —
in the hands
of the lower-
income indi-
vidual.

As many
couples find
themselves in different tax
brackets for most of their
lives, income splitting with a

spouse can be very attractive.

Although the attribution
rules in the Income Tax Act
limit income splitting

“|. you shift
income from an
individual in a
high tax-bracket
to one in a lower
tax bracket.”

between spouses, there
remain legal methods to
accomplish income splitting,
the most obvious of which is
the spousal
RRSP. I am
always sur-
prised at the
number of
couples I
advise who
have neglect-
ie this strate-

Simply put, a
higher wage-
earning
spouse can
elect to make
his or her
RRSP contribution to the
lower-income spouse’s
RRSP. Although this yields
no immediate tax savings,
tremendous savings can be
realized in the future when
the lower-income spouse

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receives income from his or
her RRSP, as it will be raxed
at the lower marginal tax
rate. Families with 2 sole
breadwinner stand to save
the most from this strategy.

A note of caution,
though: The attribution
rules svill cause this income
to be taxed at the higher rate
if the lower-income spouse
withdraws money from 4
spousal RRSP to which a
higher-income spouse has
contributed in the past two
years.

If both spouses work and
have excess income available
for non-RESP investment,
this money should be invest-
ed in the hands of the indi-.
vidual in the lower tax brack-
et. Therefore, the spouse
with the higher income
should pay ali the household
expenses, with the lower
income spouse saving excess
funds in their hands.

Future income received
from these investments will
be legitimately taxed at the
lower rate.

Chris Carter is an invest-
ment executive with
ScovialcLeed in North
Vancouver. He is also the daily.
business commentator on the:
BCTV Morning News. He:
can be 7 reached at 981-7618,

Learn
from your
mistakes

From page 78

finances — that I'm gladI
was able to help her deal so
successfully with the chal-
lenge. Some guidelines: ©
@ Take charge of your life:
and your money as soon as
possible. Treat any mistakes
you make as part of the learn-
ing process.’
§8 Seck advice from unbiased ©
sources. If you deal with
biased advisers, talk to several,
pool the advice and see what .
makes the most sense to you. ©
@ Don’ et be afraid hel spend :
money for expert help...
Challenge the adviser to pro-:.
analysis -

: duce a tost-benefi it

to show you how ini the long
“ran the advice will save You”

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_ cannot reply personal
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