BUSINESS Wednesday, January 15, 1992 ~ Noith Shore News - 35 Use capital gains exemption while you can WILL OTTAWA take away or reduce the capital gains exemption in its next budget? Rather than waiting to find out, you might want to review your investments now and possibly use the exemption while you may. “An individual taxpayer claim- ing the full $500,000 lifetime capi- tal gains exemption on a gain on the sale of qualified smali business corporation shares or a qualified farm property currently saves as much as $189,000 in tax,’ said David Thompson, of Thors- teinssons, tax lawyers. But even the basic $100,000 ex- emption,. which you may use for ‘capital gains on any kind of prop- erty — typically real estate, stocks and vonds — can save you con- siderable tax, You should never make an in- vestment decision only for tax reasons. Still, if you were thinking about selling an investment any- way, then tax reasons — like the prospect of losing the capital gain: exemption — should prompt you to move now. You don’t have to sell an asset to produce the capital gain so you may claim the exemption. Giving ‘‘property,’’ typically securities or real estate, to another family member triggers a disposi- tion at the fair market value. You declare the capital gain and claim the exemption. The fair market value is, in ef- fect, the ‘‘purchase’’ price for the recipient so any future capital gain will be less;.it will be calculated from that higher, ‘tadjusted cost base’? — instead of from the - lower, original purchase price. Note that if you give property to a spouse, you have to make a special election to have the-prop- — erty change hands at the fair market value. Otherwise, there is no disposition to trigger the: capi- tal gain in your hands. And the property then keeps its. original “adjusted cost base’? (what you :Paid for it). - [you owned a holiday home as “well as your regular home before 1981, you and your spouse should’ each be able to designate one of the places as a principal residence. | Then any capital gain would be Michael Grenby DOLLARS AND SENSE calculated .starting only from 1981. : Be sure to get expert advice be- fore you make any such moves. “*The complex rules surrounding the capita! gains exemption, especially as it applies to qualified small business corporation shares, provide both tax planning oppor- tunities and pitfalls,” said tax lawyer Thompson. * **Ef you are planning to sell an unincorporated business, for ex- ample, you should consider incor- porating the business and then immediately selling the shares of the new company. You would then qualify for the $500,000 cap- ital gains exemption.” Thompson also noted that shareholdings can often be split among family members ‘‘which multiplies the $500,000 exemp- tion.”’ Only individuals (not com- panies) may claim the exemption. “*If you have a company incor- porated before Nov. 21, 1985, vou ‘may be able to enjoy a windfail advantage,’’ Thompson said. “If there are any high par value or no par value preferred shares issued before Nov. 22, 1985, you may be able to redeem those TRIMARK WE MANAGE. To OUTPERFORM. Since inception on Sept. 1, 1981, Trimark Fund investors earned Latest 1.3.5 & 10 year performance to Dec, 31, 1991 was 28.3%, 10.2%, 10.0% and 16.5% “respectively. ~ TRIMARK FUND | “Invest Your Savings Where They'll Really Grow, ATRI MARK MUTUAL FUNDS WE MANAGE, TO OUTPERFORM. Mb reimis are average annual compound rates of tetuen and reflec tts sbuitons namcestead stn evtiics sede changes of ct kased, Past pa peanitce ss nor necessaetly adic attive vf fatute resadts, Ain other ame iy Peespectis any VT fiaies ecubited by ant & Yao. Chartcad Ncountants CALL ME TODAY GREG GIRDLER (604) 669-1143 GREAT PACIFIC MANAGEMENT CO. LTD. 300 — 1190 Hornhy St. Vancouver, B.C. V6Z 2K5 sharcs for cash ear debt. That would create a capital gain which could be offset by the exemp- tions.” You might also be able to “crystalize’” your entitlement to the capital gains exemption through a non-arm’s length trans- fer — that is, a share transaction within the company. That allows you to realize the increase in the tax base of your company’s shares now so you can use your capital gains exemption while it still exists. As this process also increases the adjusted cost base of the shares, it reduces any future (possibly taxable) capital gain on death or when the shares are sold. The business must meet certain conditions. And it must be an ac- tive business. Shares of a com- pany that deals only in passive in- vestments like stocks, bonds and even revenue property would not qualify. You need to look at all the tax aspects, including the CNIL (cumulative net investment los) and AMT (alternative minimum tax) rules. | S | TOTEMCOLOR JANUARY SPECIAL REPRINTS 3Y"x 5” 45¢ ea. 4” x 6” 55¢ ea. 5” x 7” $2.50 ea. 986-2271 =: 119 East Ist St =A Let’s say you plan fo take some profits in the stock market. But you have been losing money on your revenue property since (988 and have had little or no other in- - vestment income. That could build up a CNIL balance which would restrict or even deny your use of the capital gains exemption to of- fset the stock profits. Also, the non-taxable part of any capital gain is added back for AMT purposes, so ask Revenue Canada for the AMT calculation form to see if you might have to pay — or might be able to avoid — the tax. Mike Grenby is a North Shore-based_ columnist and in- dependent financial adviser who works with individuals; he will answer your questions as space allows — write to him c/o The North Shore News, 1139 Lonsdale Ave., North Vancouver V7M 2H4, TRIMARK MUTUAL FUNDS RRSPs $37,527 ye dota” ATRIMARK _. MUTUAL FUNDS ‘WE MANAGE. To OUTPERFORM. This chart represents the performance of Trimark Canadian Fund's 10 year average annual compound rate of retum to October 31, 1993 of 14.1%. - The latest 1, 3 and 5 year returns are 23.4%, 7.2% and 9.2% respectively. These rates of return refiect distributions reinvested, exclude sales charges and RRSP administration fees and have been audited by Ernst and Young ’ Chartered Accountants. All results are based on past performance and are not indicative of future results. Funds are offered by prospecius only. CALL US TODAY: STEVE PHILLIPS JOE LAPPAN, CFP 844-5723 © (Res.) 985-1270 - Investment advisors to Canadian enterprise and enterprising Canadians 500 ~ 1066 West Hastings Street, Vancouver, B.C. V6C 3E8" IN BUSINESS & REALESTATE Statistics show that Canadian women are impacting the marketplace more every year. Not only do women own 1/3 of all new businesses today, they are starting businesses at twice the rate of their male counterparts. The North Shore News salutes women in business with a special feature January 29. If you are a woman in business, join us in applauding you by promoting yourself and your business. Call us for more information. Debbie Cragg DISPLAY ADVERTISING 980-0511 Kirk Michael Booking Deadline January 20th Arlene Anderson FOR REAL ESTATE nor th shore Please call 985-2131 sunoat = WEDNESDAY - or 844-5724 + (Res,) 980-4099 ant