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Wednesgay, July 20,

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umer tax tips keep accounts cool

Michael

DOLLARS AND SENSE

GOING FAST! This is your last chance to use the $190,000 capital gains exemption to evoid or at least reduce the tax bill on many of your investments that have risen in value.

The latest rumor from Ottawa . Suggests higher income rates might replace (or more likely, supple- inent) the GST. If nothing else, that should be enough to motivate - you to look for every legal way to keep your taxable income as iow as possible. _. ‘The only way to save on the GST is to spend Jess. But sound planning caa Jet ycu both earn | more and keep more of that -money. :

~ We continue our.annual sum- -mertime series of tax tips from Elio Luongo and Ed Militzer of

KPMG Peat Marwick Thorne char- ~ tered accountants with a jouk at ". that fast disappearing capital gains “exemption,

-. °. Before you.make any moves, get all the details to confirm the following ideas apply to your situ- ation and talk to a professional

_financial advisor.

‘Also, rules and the way they are administered change with dismay- ‘ing regularity, so check for the lat-

'. est facts and figures. Put simply, if you have qualify- ing investments which were worth more last Feb. 22 than when you

_got them, you may declare enough ‘of this capital gain to use up your

« ° $100,000 exemption. You don’t have to sell or transfer the invest- ment; you simply fill in a form

= which should be available later this year and include it when you complete your 1994 tax return.

By declaring this gain and

claiming the offsetting exemption

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q Rate as at July 19/94. H Subject to change and availability.

io 1994, you may reduce your future tax bill when you eventually sell the investment.

However, incteasing your 1994 income this way could, in some situations, increase your 1994 tax bill. If se, you must then decide if the future benefit of using the exemption now outweighs those present costs.

Example: You bought mutual funds of stocks a few years ago for $10.000 Oa February 22, 1994 they were worth $13,000. So you declare the $3.000 capital gain when you file your 1994 tax return and claim a $3,000 capital gains exemption, which means you pay no tax on this profit.

Now your “adjusted cost base” for the investment is $13,000 (instead of the original $10,000) You eventually sell the stocks for

$14,000, That year, you will decfare only a $1,000 capital gain.

“When you mike the election to declare your profit and claim your capital gains exemption, you may choose any value of your invest- ment between your original adjust- ed cost base and its fair market value last Feb, 22." Luongo said. “Make sure you have that Feb. 22 value; it's easier 10 get the figure now than it will be next spring when you file your return.”

A rule change (wo years ago means investment real estate you bought after February 1992 doesn't qualify for the capital gains exemption. But for property you bought that February or earli- er, part of any capital gain may be eligible for the exemption so you should establish the Feb. 22, 1994, value now. Pay for an appraisal or

ask a realtor for help. Get print- outs of comparable properties which sold around that date.

“If your investarent losses and expenses have been higher than your investment income since Jan. t. 1988, vou will have a cumula- live uct investment loss (CNEL)

” Militzer said. “That will > your ability to use your supital pains exemption unless you can eliminate your CNIL balance this year.

“There are other traps. Declaring a capital gain will increase your net income and that could reduce various tax credits like the child tax benefit, age amount and GST credit. Also, a higher vet income means you could have some or all of your Old Age Security pension or Unemployment Insurance henefits

.

clawed back.

“And if you make a large con- tribution to an RRSP this year — perhaps rolling over a retiring allowance or severance pay -~ this, together with claiming the capital gains exemption, could pro- duce an Alternative Minimum Tax (AMT) bill.”

You or your tax advisor should do the calculations to find out whether you will incur any costs

by declaring capital gains te usc up cigs.

your exemption.

ike Grenby is a North Suore- based columnist and independent financial advisor who works with individuals. He will answer your questions in this column as space allows. Write to him clo 2444 Haywood Ave., West Vancouver, B.C. W7V IYI.

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