‘Nednesday, December 16, 1992 — North Shore News — 53 Income-splitting as a tax-planning strategy Michael Grenby DOLLARS AND SENSE WHETHER YOU lock at tax planning in general or something specific like a tax shelter, make sure the end justifies the means. “Taxpayers are reguiariy led in- to tax plans that don’t justify the time and expense of. implementa- tion and administration,’’ said David Thompson, of Thors- teinssons, tax lawyers. You must look at the expected benefits but realize that an analy- sis leading to precise figures usual- ly proves impractical because so many assumpticns have to be made. At a continuing legal education seminar, Thompson did look at the case of a lawyer who was con- sidering incorporation and other tax planning strategies. From his 3l-page analysis, I’ve drawn just a few points which are of gexeral interest to those with their own businesses, “incurporated «ar otherwise. (Note that a business gan include revenue property.) You can save tax through in- come splitting when other family members (spouse, children — and possibly other relatives whom you support) are in a lower tax bracket than you. Al present, tween the lowest tax bracket (tax- able income below about $30,000) and the highest tax bracket, which applies to income of more than about $59,000 (ignoring surtaxes), is about 20 percentage points. So if your taxable income is more than $59,000, you should be able to save at least $260 tax for every $1,000 shifted into the the difference be-, hands of a family member with taxable income below $30,000. “You can pay a reasonable sal- ary to a spouse to work in your business,’’ said Thompson. The spouse must actually do the work and should receive about what you'd pay an outsider. ‘As a practical matter, Revenue Canada is generaily quite lenient “as far as payment of telatively modest salaries to spouses,’ Thompson said. ‘‘However, large salaries are often challenged and excessive salaries are sometimes penalized. 'f Revenue Canada ever suc- cessfully challenges the deduc- tibility of a salary to a spouse because all or part of it is unrea- sonable, then double taxation arises. **Ycu lose the deduction but your spouse will still be taxed on the salary received.”’ Salaries can also be paid to children — scrutinized even more closely than spousal salaries by Revenue Canada -- ard other family members. (The benefit: ia-- stead of supporting family with your after-tax dollars, you pay them, claim a deduction and they pay their own expenses.) If you incorporate your business or practice, a trust may sometimes be used to split income -- but get expert advice here. “Once the children become in- dependent, incorporation can then be used to shift the emphasis to deferring iax and building up ad- ditional funds for retirement,” Thompson said. An active business might pay about 25% tax on its income. if it earns $100,000, it pays $23,000 tax and $77,000 remains in the company to be invested. !f an in- dividual pays 40% to 50% tax on income of $100,009, only $50,006-$60,000 remains to be in- vested. Once you don’t need all your income for living expenses, con- sider leaving money in the com- pany even if that means putting less money into a_ registered retirement savings plan, Thomp-— son said, If you pay tax at 50% and take another dollar out of your com- pany to generate an 18-cent RRSP contribution, you pay 50 cents tax on that extra dollar of income — but save only nine cents tax by be- ing able to contribute another 18 cents to your RRSP. THEYSAID | BUILD IT AND THEY| WILL € COME! Come visit us at our new location (next to Woodward’ s) turn right. So you pay 41 cents tax on that donar. If you leave the dollar in the company. the company pays only about 23 cents tax. “Income doesn’t accumulate tax-free in 2 company the way it does in an RRSP,’ Thompson said. ‘But if the company can in- vest its money in growth-oriented investments which produce little or no income, then the company can have the same tax-deferral advantage as the RRSP.”’ - Copyright 1992 Mike Grenby is a North Shore-based celumnist and in- Gependent financial adviser who works with individuals; answer your questions as space allows — write to him c/o The he will Ave., 2H4. Each year, ICBC announces insurance premium changes affecting BC motorists. While these receive lots of attention, other changes have been made to give you the most appropriate Autoplan caverage. Changes are effective immediately on new policies and January 1, 1993, on renewals. . @ ICBC needs an additional 19.5% in total premium income to meet anticipated claim ce ts. eg Highzr Diver Poin Premiums starting « at four: : points, not five. - : a 2 : a Underinsured Motorist Protecton(UMP) Hs mits. ; chenged to $1 million. os ; a] Higher mistmum deductibles efor Collision & Comprehensive. u : 8 Weekly disability payments s start on Bth day. .] Optional propane or CNG fuel. ‘conversion © es equipment coverage now ‘available. We EBs Higher premiums ICBC requires an additional 9.5% in total premium income in 1993 to ensite that funds are availadle to pay claims. Higher Driver Point Premiums One way ICBC makes “bad drivers" pay more is through Driver Point Premiums which go into the Autoplan Fund to help reduce costs for the rest of us. These premiums are being increased once again so that drivers caught breaking traffic regulations pay more. Also, drivers will now be billed for Driver Point Premiums once they have accumulated four points, not five. Daily renewals ICBC is giving motorists new Autoplan expiry dates to mave from mauth-end renewals to daily renewals for improved service, Please visit your Auioplan agent before your insurance expires so you aren't driving without insurance coverage. UMP limit change Underinsured Motorist Protection (UMP) is part of your basic coverage. The basic UMP limit is now $1 million per insured person. You can buy an optional policy offering an additional $f million in UMP coverage. . | Higher Collision & Comprehensive minimum deductibles ICBC has increased minimum deductible amounts for optional coverages. The minimum Collision deductible is now $200 and the minimum deductible for Comprehensive coverage ts $100. Deductibles also now apply to claims for total loss of a vehicle due to fire. lightning or theft. Disability Payments Under No-Fault Acc- ident Benefits. weekly disability payments of benefits now begin on the eighth day, bringing ICBC's benefits in line with — practices in other jurisdictions. . Propane/CNG fuel coaversion equipment coverage In response to public demand, ICBC has introduced a new optional policy which will cover. in the event of a total loss of certain vehicles, the costs of removal and installation into another vehicle, of a propane or natural gas vehicie conversion. | | Any contradiction, dispute or difference between the contents of this advertisement and appiscable Acts or Regulations shall be resolved only by reference to the Act or Regulation. 44 1f you incorperate your business or practice, a trust may sometimes be used to split income ...99 North Shore News, 1139 Lonsdale North Vancouver V7M