Wednesday. August 1, 1990 - North Shore News ~ 35

BUSINESS

Save tax by splitting AMT add-back items

WHAT A difference a day can make — a difference of
almost $6,500 less income tax in the case of Joe and Mar-

tha.

If you have investments ar are
receiving severance pay (also
known as a retiring allowance)
because you are leaving your job,
you need to know about CNIL
(cumulative net investment losses)
and AMT (alternative minimum
tax) — and possible ways to
reduce the extra tax they might
cost you.

That's the subject of today’s tax
tip from Elio Luongo, senior tax
manager with Peat Marwick
Thorne. chartered accuuntants,

Note: the following example
(which uses the combined feder-
al-provincial tux bracket rates of
27, 40 and 46 per cent) illustrates
Strategies dimed at saving (ax.

“Effective planning takes a
much longer view, so it’s impor-
tant to look at your particular sit-
uation over the long term — and
possibly seek professional advice
-— before you take any (ax-saving
steps.” Luongo said.

Michael
Grenby |

DOLLARS AND SENSE

**Also realize that depending on
the circumstances, Revenue
Canada could use its general an-
ti-avoidance rule (GAAR) to
disallow certain tax planning
techniques.”

Joe (it could just as casily be
Martha) is 60 years old. About 10
years ago, he bought a $150,000
rental property for $30,000 down.
Today, the place is worth
$250,000, with $100,000 of the
mortgage still outstanding.

In 1988 and 1989, Joe had to
spend quite a bit on repairs and
maintenance, resulting in $9,000
of rental losses over those two
years.

Joe retired this year and trans-
ferred his $30,000 retiring allow-
ance directly into his RRSP.

Joe also wants to retire from his
job as a landlord, so is sclling his
property. He’s prepared to take
back a mortgage of $100,000 at 13
per cent and has a tentative deal
set to be completed this Dec. 31.

“J haven't used any of my capi-
tal gains exemption, so there
shouldn’t be any tax on my
$100,000 profit"? he said. Joe will
be in the lowest tax bracket this
year.

“Without any tax planning, Joe
will end up paying an extra $6,480
in tax,"’ said Luongo.

The reasons? Because Joe had
$9,000 of investment losses (the
rental losses) since the beginning
of 1988. he will be able to claim
only part of his profit on the
rental property as a tax-free capi-
tab gain: that $9,000 CNIL
balance means $9,000 of his tax-
able capital gain will be added to
his taxable income this year.

Also, the AMT calculadons te-
quire Joe to add back the non-
taxable ($25,000) part of his capi-
tal gain and the $30,000 retiring
atflowance he rolled over to his
RRSP. He can claim a $40,000
exemption but he sail ends up
with an AMT bill of $4,050,

The solution? “Tf Joe delays the
sale of his preperty by one day —
to Jan. 1, 1991 — he wikk split

those AMT add-back items over
two years,’ said Luongo. ‘tHe
can then use the $40,000 exemp-
Uon in each year and not have to

“Also, the interest he'll earn in
1991 on the mortgage he took
back will wipe out his CNEL
balance, so he'll be able to claim
his entire capital gains exemption

and not have any CNIL to
declare.”
Even if the Dee. 31 deadline

way to reduce the impact of the
AMT.

“Joe could claim @ capital gains
reserve with respect to the portion
of the sale proceeds that have not
yet come due,”* said Luongo.

“Because he is taking back a
$100,000 mortgage. he has not

proceeds. That means he can ex-
clude two-fifths of his profit, or
$430,000, from the capital gain he
must declare this year.

“This would result in at least a
partial splitting of the AMT add-
back total, and reduce the impact

pay any AMT.

“FREE”
is a word that is over-

used, misunderstood and often
confusing. But at Heritage Duty
Free, “Free” means precisely

this, our products are...

FREE of Federal Sales Tax

FREE of Manufacturer's Sales Tax
FREE of Provincial Sales Tax
FREE of Excise Tax

FREE of Excise Duty

What this means. is that you
can buy the same merchandise
from Heritage Duty Free Shop
as is available at quality depart-
ment stores and designer bou-
tiques at as much as 50% off
their normal retail price Plus, at
Heritage Duty Free Shop. we
have the friendliest, most
knowledgeable staff in the
Lower Mainland. We can answer
any question on fragrances,
liquor, jewelry. etc. that we
offer—can your favorite depart-
ment store do that?

Our brand names include
Estée Lauder. Gucci, Nina Ricci,
Porsche. Fendi. Christian Dior.
Monet, Oscar de la Renta,
Patoma Picasso, Elizabeth
Arden, Lancome. Swarovski.
Serengeti and Raymond Wei.
Estée Lauder perfumes and
cosmetics and Gucci watches
are available exclusively at
Heritage Duty Free Shop.

can't be changed, there is sulla

And here are a few things
you should know about shop-
ping duty free before entering
the U.S.:

@ U.S. Customs will not charge
you duty and tax on goods pur-
chased duty free.

@ Goods purchased from a
Canadian duty free store can be
returned to Canada.

®@ You can buy merchandise for
yourself or as a gift up to
$100.00 CDN if you are going to
be out of Canada for 48 hours.

With your minimum §25 00 purchase
,Ou Rave your choice of 2 qrts
+ Carryall bag
* Drakkar Mo 150 mi shaving clean
While quantities last

received two-fifths of the

® You can buy merchandise of
up to $300.00 CDN if you are
going to be out of Canada for
seven days, (once a year}.

@ You can pay for your pur-
chase with American Express,
Visa, Mastercard or traveller's
cheques and U.S. or Canadian
currency. (Heritage Duty Free
offers a currency exchange for
your Convenience).

@ \f you purchase more than
your duty free allowance, de-
clare this to Canadian Custonis

Wath your minimum
$40 00 purchase racenve a
Free Oscar De La Renta
Gitt Set

4
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total

of the AMT."

upon your return and you will
only be required to pay duty and
taxes on the difference.

® You can take the goods you
have purchased with you when
you leave Heritage Duty Free.
@ Heritage Duty Free Shop has
parking for 200 cars and lots of
room for R.V.’s and trailers.

@® You can call Heritage at
536-7040 for an accurate traffic
report at the Douglas Crossing
(Peace Arch).

@ Heritage Duty Free Shop
offers all the manufacturer's
Quurantees and warranties
available and has a trouble-free
return policy.

@ Many perfume and cosmetic
manufacturers offer a gift with
purchase at Heritage Duty Free
Shop.

@ Heritage Duty Free Shop is
accessible to the handicapped.
@ Ask about our Passport to
Savings program for frequent
travellers.

So start your shopping at
Heritage Duty Free Shop
before you head south this
weekend.

HOURS (7 days a week):
March 1-September 30
5 am ta Midnight
October 1~February 28
7Zamto 10pm

be)

Mm menes Canada

Highway 99 at the Peace Arch Crossing ® (604) 536-7040