46 - Wednesday, July 11, 1990 - North Shore News BUSINESS Readers’ financial questions answered THE TYPOGRAPHICAL gremlins crept into last week’s column about the new RRSP and pension rules: *From 1991 on, you may over-contribute to your RRSP up to a total of $8,000 (not $6,000). elf you own an incorporated business, starting in 1991 a desig- nated shareholder pension plan could offer more tax-sheltering scope than an RRSP. (Part of this paragraph didn’t appear in the column). weak How to pay less tax — and simply how to have more money: that’s what most readers want to know. From reader J.C.: “I don't have a pension from a former employer. I'd like to take advan- tage of the $1,000 pension income amount but don’t understand how to do ihis.’’ You must be 65 or older. Then you have three choices: (i) Convert RRSP funds to an RRIF o7 annuity. All the income will qualify and you can claim the pension income amount — which will save you about $270 tax a year. (2) Use non-RRSP funds to buy a guaranteed income annuity, which only life insurance com- panies sell. Although it’s like a term deposit, GIA income qualifies as either interest or pen- sion income. 3) Buy a= prescribed annuity (again, sold only by a life in- surance company). The income part of the payments also qualifies as either interest or pension in- come. From P.H.: “Is there any painless way to withdraw our RRSP money to pay down the mortgage?’’ The RRSP money you take out is added to income and taxed. Do the mortgage paydown benefits more than outweigh the tax you pay plus the loss of the future tax-sheltered growth? Financially, the answer is usual- ly no, especially if you are in one of the two higher tax brackets. However, if for personal and possibly financial reasons you do go ahead, remember to take out the money in $5,000 chunks so only 10 per cent income tax will be withheld. But also remember to plan for the extra tax you will have to pay next April 30. From P.S.: ‘‘My husband had RRSPs but no registered pension which means he now loses out on the special $6,000 spousal RRSP contribution. Is that fair?’’ If you are in a pension plan, you end up drawing all the pen- sion in your name. If your spouse is in a lower tax bracket, you pay more tax than if you had con- tributed to a spousal RRSP, with the income eventually taxed in that spouse’s hands. Ottawa allows pensioners to put up to $6,000 a year into a spoural plan through 1994 to try to rectify that imbalance and make up for the new rule that says people with only pensions can no longer make RRSP contributions. From E.W.: ‘‘Is there any point switching Canada Savings Bonds to T-Bills and T-Bill sccounts to get more interest? That will only increase my tax bill, won't it?°* And from N.O.: “I'm 2 single parent with taxable income of $29,000 which is enough for our needs. I'm now in a higher tax bracket. Should I rent out my basement suite?"’ Yes all the way. The higher your income, the more money you will have left ~ even if you do pay more tax. With the rental, you should be able to deduct a portion of your heating, ikydro and similar bills — otherwise not deductible —- to reduce the extra dollars and sense Michael Grenby tax. From G.E.: ‘‘What do they mean by the ‘non-taxable’ part of capital gains? Is that the same as the capital gains exemption?”’ When you have a capital gain (profit on the sale of stocks, reve- nue property, a business and so on), three-quarters of the gain is considered a taxable capital gain. The remaining one-quarter is the non-taxable gain. You must declare the taxable capital gain but may then claim an exemption. The capital gains exemption is a lifetime maximum of $100,000 ~~ or $500,000 for the shares of cer- tain small businesses and farms. So if you have a $100,000 capi- tal gain, you claim the $100,000 capital gains exemption and prob- ably pay no tax. (Actually, you declare the $75,000 taxable capital gain and claim an offsetting $75,000 deduction). However, you may not be able to use all of your deduction if you have a CNIL (cumulative net in- vestment loss) balance — that is, since the beginning of 1988 your total investment losses have been greater than your total investment income. ‘TERM DEFOSITS — 12%4% 30-89 DAYS 12%4% 1 YEAR 5S years 12% ALL RATES SUBJECT TO CHANGE WITHOUT NOTICE VANCOUVER 815 West Hastings Street VANCOUVER 5701 Granville St. at 41st Ave. s NORTH VANCOUVER Lonsdale Quay NEW WESTMINSTER 435 Columbia Street WHITE ROCK 1959-152nd Street # CALGARY 506-6th Street S.W. MEMBER CANADA DEPOGIT INBURANCE CORPORATION i] 883-7283 263-7283 983-3773 524-2288 531-1123 268-7321 replacemen carti er. Boy or girl, young or old ... We need your help now! The NEWS is delivered to all the homes in your neighborhood every Sunday, Wednesday and Friday. You may be able to deliver all three days or just the ones that suit you best. 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