Busimess TheReview Wednesday, March 27,1991 — A26 Splitting income among family members for tax benefits Did you pay too much tax in 1990? If you have immediate fam- ily members in a lower tax bracket, you might be able to cut the family’s 1991 tax bill. Shifting income to family mem- bers in a lower tax bracket is commonly known as income- splitting. This year’s federal budget left most tax-planning approaches untouched. But as the rules can change at any time, even between budgets, each year you should review the various ways to split/shift income. Use the shock of your 1990 tax bill — especially if Ottawa “clawed back” any family allow- ance or Old Age Security pension — tO motivate you to split income: mark any of the following strate- gies that could apply to you. — Spouse in the higher tax bracket pays all the bills; spouse in the lower tax bracket does all the investing. This way, the investment income will be taxed at a lower tate. Higher-income spouse can even pay lower-income spouse’s income taxes, whether quarterly installments or any amount owing when tax return is filed. — If one spouse is working to put the other through school, doc- ument the amounts spent on schooling and other expenses as a loan. Let’s say the wife puts her husband through school, then quits work outside the home to raise a family. At this point, she probably drops into the lower tax bracket. Now, the husband who is in the higher tax bracket can repay the loan — providing his wife with funds to invest at her lower tax rate. The schooling loan doesn’t have to bear interest. — If you give money to a spouse or lend funds to an adult child or parent (because the spouse, child or parent is in a lower tax bracket), you must still declare the interest, dividends and capital gains earned by that money. So give or lend money for non- investment purposes, freeing up the lower-income family mem- ber’s own money for investment. Example: Lend your college child money to pay education costs. Then the child can save and invest money earned which would otherwise have gone for schooling - ——and probably pay little or no tax on the investment income. ‘Shiffing income to family members in a lower tax bracket is commonly known as income- splitting’ — Pay a spouse and other family members in a lower tax bracket to work in your self- employed (full-time or part-time) business, which includes any reve- nue property you own. — The annual RRSP season is Over, but now is the time to be making your 1991 RRSP contribu- tions — and putting money into a spousal plan if your spouse is likely to be in a lower tax bracket than you when the funds are withdrawn. — Give or lend money to a spouse to shift second-generation income. If you give or lend your lower-income spouse $50,000, you must report the $5,000 interest STRAIGHT TALK | ABOUT YOUR MONEY. ss =H wan |[Feb [Mar [Aor May Pun puty GURNEY SMITH & ASSOCIATES LTD. FINANCIAL CONSULTANTS ¢ LIFE UNDERWRITERS SUITE 6 - 9843 2nd St., SIDNEY (In Morina Court) 656-2411 1205 C Verdier Ave, (Brentwood Bay Shopping Centre) 652-1482 NIGHOLAS W. LOTT R.G. WITT LAPPER TIMOTHY F. LOTT Criminal Law / 9830 FOURTH ST. SIDNEY, B.C. 656-3961 a McKIMM & LOTT BARRISTERS, SOLICITORS & NOTARIES GEORGE F. McKIMM - COUNSEL Personal Injury / Real Estate Family Law / Commercial & Co. Law Municipal Law FIRST 1/2 HOUR CONSULTATION FREE GANGES CENTRE BLDG. CHRISTOPHER S. LOTT D. MAYLAND MCKIMM GRANT S. WARRINGTON Wills & Estates GANGES, B.C. 537-9951 eared. But your spouse can then invest that $5,000 in his/her name, and the second generation interest — the $500 — will be taxed in your spouse’s lower bracket. Repeat this each year to build up the compounding second- generation investment income in your spouse’s name and lower tax bracket. — Put the child(en)’s family allowance into an account or higher-income investments in the child@en)’s name(s). The income eared by these funds will be considered the child’s for tax pur- poses (although the parent must still declare the family allowance payments as income). — Split the Canada Pension Plan pension once both spouses have reached age 60. Depending on contribution levels and length of marriage, up to half of each pension can be paid to the other spouse. If the husband has a higher CPP pension than his wife and is Is your tax bracket keeping your money boxed in? Call'me today and find out how Investors can help you save taxes. R.T. (TOM) FITZ-GERALD 388-4234 Investors Group Building futures since 1940. in the higher tax bracket, this will shift more money into her lower tax bracket. — Selling and swapping assets can shift income to the spouse in the lower tax bracket. Let’s say the wife owns the $200,000 family home (inherited from her parents or former husband) and has little or no income. The husband has an investment portfolio worth $200,000 producing income which is taxed in his higher bracket. Husband and wife could Swap assets. You’d need to review costs involved in such a transac- tion and other tax implications, like triggering a capital gain (or loss) on the investment portfolio. — An estate freeze of your investment or business assets can shift future growth into the hands of your children. Get professional advice for this strategy — and, for many of the preceding approaches. Also beware GAAR (general anti- avoidance rule) which says, in effect, that unless the tax act specifically allows something, you must have plausible non-tax rea- sons for rearranging your finances (even if in your heart your basic moOlive is to save tax). Mike Grenby is a Vancouver- based columnist and independent personal financial adviser; he will answer your questions as space allows in his column — write to him clo The Review, P.O. Box 2070, Sidney, B.C. VSL 3C5. CAPITAL CONSULTANTS LTD. Personal - Corporate INVESTMENT ADVISORS FINANCIAL PLANNING SS io Complete _ Investors Service Lee Ann Weigold Financial Planning 384-8844 or 655-4105 Res. MOORE ROBERTS & CO. Chartered Accountants Accounting and Auditing Services Income Tax Preparation and Planning Business and Computer Consulting FAX LINE 656-2382 200 - 2377 Bevan Ave., Sidney Postal Code V8L 4M9 656-5547 BRITISH COLUMBIA'S NEW SMALL CLAIMS COURT PROGRAM I: is important for all British Columbians to have direct access to an understandable justice system. Court procedures can be confusing to those without legal training. A new program for small claims court has been introduced to help people, without a lawyer, to settle disputes. On February 25, 1991, Attorney General Russell G. Fraser announced the new Small Claims Act, Rules and procedures for “The People’s Court”. A number of new program features will help British Columbians make better use of small claims court. PLAIN LANGUAGE Rules, forms and information booklets are written in simple straightforward language that is easy to use. INCREASED LIMITS The limit on small claims is now $10,000. The previous limit was $3,000. STEP-BY-STEP FORMS AND BOOKLETS Information booklets prepare you for each stage of the small claims process, and the step-by-step directions help you complete, file and serve your forms. The booklets and forms are colour coordinated so that you have complete information at every step, whether you are filing a claim or replying to one. SIMPLIFIED SERVICE OF PAPERS You no longer must serve papers in person, you can now use registered mail. SETTLEMENT CONFERENCES BEFORE TRIALS c Mandatory settlement conferences with a Judge will try to settle disputes before they go to trial. If agreement can’t be reached, the conference will help participants get ready for trial. Russell G. Fraser, Attorney General Sy Province of British Columbia Ministry of Attorney General General information brochures on the small claims program are available at public libraries, government agents and court registries. Booklets and forms are available at court registries. “Small claims court is now efficient, affordable and accessible to all British Columbians.”