Business

“Before you can save tax, you have
lo save money.”” How’s that again?

“Most tax beneficial schemes
involve some sort of investments,”
said tax lawyer Mike Mallin. “If
you spend all the money you earn,
there’s not too much you can do.”

Mallin is the co-author (with
R.D. Hogg) of Preparing Your
Income Tax Returns (CCH Cana-
dian, $16,95). Now in its 25th year,
the 1990 edition (covering the
1989 tax return) has just been
published.

“Employees are in the worst
possible position,” Mallin said in
an interview. ““There’s pretty well
nothing they can deduct.

“If you are the company presi-
dent or in the executive core,
benefits do exist. But the average
employee doesn’t have much bar-
gaining power to take advantage of
such benefits.

“Even then, many of those ben-
efits don’t involve large amounts
of money. A company car used to
be a possible benefit, but the car
rules now are so complex they
restrict this benefit considerably.

“Tf you are self-employed rather _

than an employee, you still have to
have enough discretionary income
to make tax planning worthwhile.”

‘I know all sorts of
professional
people who have
no more idea what
their pension plan
means than the
man in the moon’
-Tax lawyer
Mike Mallin

Mallin suggested people focus
on three major savings/investment
areas: the company pension,
RRSP and non-RRSP instruments.

The pension is the most com-
mon form of saving for most
employees,” he said. “But good
luck trying to understand it.

“While pension plans are often

TheReview

They tax the money
you don’t tuck away

very good, making very generous
provision for your retirement —
often much better than you could
do with your own RRSP — too
often the printout you get each
year has fairly useless information.
Even brochures are typically gob-
bledygook.

“1 know all sorts of professional
people who have no more idea
what their pension plan means
than the man in the moon.”

So for your own self-interest,
finding out how your pension plan
works is vital.

~ That information is particu-
larly important if you think about
changing jobs,” said Mallin, “or if
you have to decide about joining a
plan, what to do with benefits
when you have a choice, or buying
back past pension.

“Ask others involved, to see if
anybody understands. Perhaps go
with a group to the person respon-
sible for the plan and ask for an
explanation. Perhaps have an out-
side person brought in.”

Mallin believes the RRSP (reg-
istered Telirement savings plan) is
the best way to save — and save
tax — for most people.

~ You can deduct your contribu-
tion, which helps provide the
money to save, and the money in
the RRSP accumulates free of
tax,” he said. “Over the long-
term, the compounding effect you
get from this tax-free growth is
even better than the deduction.”

Some suggestions from Mallin:

e Ask Revenue Canada for its
(free) 1989 Pension and RRSP Tax
Guide so you can work out your
maximum contribution for last
year. Or you could refer to a book
like Mallin’s.

* Remember that 1989 is the
last year you can contribute up to
the total amount of your pensions

fo your own RRSP. and the first
year you may put up to $6,000 of
Private pension income into a
spousal RRSP.

* You could use an RRSP (and
possibly a spousal RRSP) to save

for a big expense like a house —

provided your (spouse’s) tax
bracket will not be higher when
you withdraw the money. Or you

could keep the RRSP if it made

sense to take out a mortgage from
your RRSP.

> If you expect to be in a higher

tax bracket in the future you
should probably avoid using an
RRSP.

« Buying your own home is, of
course, both a personal and finan-
cial investment — and usually one
of the best moves most people can
make. What about other savings/

investment programs?

“If you save at a financial
institution, you pick one with a

reasonable rate of return and con-
venience,’ Mallin said.

“Tf you believe in investing with
risk for greater reward, then you
have to find someone who will
lead you through the maze of
investment Opportunities and
alternatives, unless you are pre-

Wednesday, February 21, 1990 —= 85

pared to do that yourself.

~My dad used to spend a couple
of hours a day reading financial
papers and prospectuses. That
didn’t rub off on me so I work
with others to choose the most
appropriate investments.”

NEXT WEEK: How to use your
lax Tetum as a tax planning check-
list.

Mike Grenby is a Vancouver-
based columnist and independent
fimancial adviser; he will answer
your questions as space allows in
his column. Write to him care of
The Review, Box 2070, Sidney,
B.C., V8L 385.

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