36 - Wednesday, August 24, 1994 - North Shore News The peril of lending kids cash Michael DOLLARS AND SENSE WATCH OUT! If you lent money to a child and regis- tered a mortgage in a land title office as security, Revenue Canada could be after you for hundreds — more likely thousands — of dollars, even if the child hasn’t been paying or wasn’t meant to pay any interest. The tax department has been tracking down inierest-bearing par- ent-child mortgages at land registry offices and sending letters to people with such arrangements proposing to tax them. The possibility of penalties _is mentioned. But, there could be a simple way out of the problem if you understand what’s going on behind the scenes. . Let’s say you lent $50,000 to a son or daughter to help them buy a home. You took back a first or sec- ond mortgage so if you ever needed the money, you had a legai claim — or if your child’s marriage broke up, your ex-son- /daughter-in-law wouldn’t end up with half your money. The mortgage contained an inter- est rate, which applied both to the principal and to any unpaid interest. However, you haven’t been coliect- ing the interest and perhaps not even the principal payments because you don’t need the money — sort of an advance on your child’s inheritance. Choices USINESS “It doesn't matter that no interest payment is demanded during the term of the mortgage,” reads an internal memo from Phil Jolie in Revenue Canada’s head office gen- eral audit services, The fact that the interest is “payable,” even if never paid, is enough to make the amount taxable under Section 12(4) of the Income Tax Act. The interest of a $50.000 mort- gage at 85 would be more than $4,000 a year (if no principal were repaid. which means interest would also be charged on the unpaid inter- est on the full $50,000). That could easily translate to a tax bill of $1,000-$2.000 a year — plus daily compound interest to Revenue Canada. But according to Jolie, the department is willing tu let you out of this tax trap if you do two things: 1. All parties must agree in writ- ing that no interest was intended to be paid and none was paid; and 2. Ali parties are willing to amend the mortgage document so it’s a no-interest loan. But there’s another trap. Let's say the child did repay some of the mortgage, intending this as a pay- ment against the principal. “Revenue Canada takes the posi- tion that if any amount is paid — even one dollar — then it is interest, as interest is normally paid ahead of principal,” said Thormsteinssons’ tax lawyer David Thompson. “Applying this rule to a loan where there was no intention to pay interest is ridicu- lous and it makes Revenue Canada’s ‘concession’ meaningless.” Thompson added if the lender and borrower clearly showed there was no intention to pay interest on the mortgage, then the lender shouldn't be taxed. Commented Harm Dhillon, Revenue Canada conmnunications officer: “The department acknowl- edges interest on murtgage agree- ments is taxable on the accrual basis, but is sensitive to those situations where there was never an intention to include a provision for interest.” Jolie said parent(s) could be pro- tected if the new mortgage said, for example, interest would be payable at a stated rate only if the lender demanded repayment of the loan. Mike Grenby is a North Shore- The Lions Gate Crossing isplay Is At The PNE Acwsitto the PND isn't complete until you've seen the Ligas Gate Crossing Oisplay sponsored by the Ministery of Teansporlaticn and Highways, Located in the Pacific Showcase Building inest to the B.C. Pavilions, the display daghliphts Crossing options. impacts and aapor issues celotedi ta the replacement ar cohabitation af the Lions Gate Bridge. Photos, Charts aad graphic display boards iafara visitars “about Gre of the major transportation projects nthe bower Mainfand, She display is parlortthe Miata ’s ongoing Public involve: rent Prograny to crsure that the public has an appertunite to. provide input to the decison agking process Phvou cant eesit our dispiay atthe PNE, contaclar visi the Lions Gate Crosse lilornatian Cente Phone 683-0360 #122 - 1030 Denman Street, Vancouver Province ot Brtsh Columbia Ministry of Transportation and Highways Hon, Jackie Pement, Minister based colunnist and independent financial adviser who works with individuals; he will answer your questions in this coliant as space allows — write to him cZa 2444 Haywood Ave, West Vancouver, B.C.V7V 11, § PERSONAL INJURY Free tnitial Consultation Douglas W. Lahay CLARK, WILSON BARRISTERS S SOT HAT ORS 800-885 West Georgia Streer, Van. 687-5700 24 HOUR MESSAGE 643-3161 8 CBC's policies are net law. | will get you a fair settlement or trial award. Join a group of students on the new Open Campus, using your computer and modem in your own home. Starting September 1994 take Psychology 101/102, Political Science 200, Sociology 101/102 or History 120. Connect to the Open Campus at any time that is convenient to you, and interact with tutors and fellow students. There are no prerequi- sites for these first and second year courses. They are fully transferable to other colleges and universities in B.C. ‘ CALL NOW, Registration is open! For more information call: 431-3202 To Register call: 431-3110 or 1-800-663-1786 OPEN LEARNING AGENCY Choices In Education Now. ‘94 Moison tin Vancouver Fan Guide # In the August 26th North Shore News. A complete guide to all the action plus an in depth look at the many North Shore participants. VOICE OF 8 NTH ANG WERT VANCOUYER