Business

31 - Wednesday, March 6, 1985 - North Shore News

rome, sweet tax shelter

ost articles on retirement planning con- tinue to hammer away at the same old theme of RRSP’s, annuities, and RRIF’s.

when the very best and simplest tax shelter of all - your own home - is frequently ignored.

So; let's take a look at all the opportunities for building a tax-sheltered retirement fund by owning your home.

You don’t have to be mar-- tied to take advantage of this unique tax shelter. Although, traditionally, couples tend to buy and singles tend to rent, all tax payers whether mar- ried or not should take a Jong hard look at the advantages of heme ownership as a tax shelter and retirement fund.

First of ;all there is the Registered Home Ownership Savings Plan (RHOSP) which, although more limited in scope than the RRSP, pro- vides a true tax savings. The fund is not taxable when used to buy a home.

Certainly the RHOSP should be carefully. con- sidered by younger people before putting their savings into the more complex . “RRSP. The recent Pension Reform proposals, which are almost certain to be enacted in due course, will enable younger people to defer con- tributing to. RRSP’s without Josing the eligibility of their ‘early earning years. This will make the RHOSP a very. at- tractive first choice for their tax-deductible savings.

_ _ Should you borrow heavily to buy a home rather than rent? There:is -no. simple answer to this question. Logic and arithmetic will fre- quently-indicate that this is

BERT WICKHAM

your home your first priority should be to pay off your

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of owning your own place is of 276-2325 supplemented by the forced oo,

savings aspect of having to Tak es

.pay off. the mortgage. Pride We're the team ’ of possession ‘will. also en- that takes care courage . the: spending of of North America. money on improvements ;

-rather. than consumer items and entertainment. Although ‘the real estate market fluc- tuates and speculators. fre- quently .get <‘‘burned’’, the “family home almost always accumulates in value over the long: haul. And remember, the capital gain ‘is tax free. Furthermore, you will be liv- ing ‘‘rent-free’’ and this . return on your equity is a tax-

‘ free benefit as compared to the interest you might earn on other investments.

Once you have acquired

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mortgage as quickly as possi- ble. The interest you pay to the mortgage company is not tax deductible so it doesn't make sense to invest to pro- duce taxable income while you still have morigage debt. There is no investment as good as paying off your own mortgage! If you feel uncom- fortable without some safe investment reserve such as Canada Savings Bonds, etc.,

then borrow the money to |

buy them. The interest you pay will be tax deductible.

So much, then, for the building of your “retirement fund’? home. What is the situation when your retire? Should you sell or five in it? There are two sides to this question:

First of all, if you have enough other income for

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groceries, ctc., then your mortgage-free house represents an inflation-proof, rent-free home for as long as you feel able to maintain it. On your death, it will pass to your heirs free of any death or rapital gains taxes so it also represents a valuable estate asset. As such, you can feel more comfortable using up your other capital to live on, as you will still have a valuable legacy for your family when you die.

On the other hand, you may prefer to sell and ‘‘trade down’’ into something smaller. Or you may prefer to rent and use all your equity to provide income.

There are two tax aspects which favor either of these strategies. Firstly, your capital gain would be tax-free

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so all your equity would be available to produce income. Secondly, any income pro- duced by, say, a prescribed annuity, would be only partly taxable as compared to the fully taxable income from an RRSP. If an annuity is not for you, then you would have a chunk of tax-free capital to enjoy or invest any way you like.

So, don’t overlook the family home as your life-long tax shelter and retirement fund. It can be @ great “‘shelter’’ in more ways than

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