HG exten bo RE Business Trip through the fips and traps of income tax Summertime is the best time to talk taxes. You probably recently received a notice from Revenue Canada confirming (or “correcting’’) your 1990 return — reminding you of all the income tax you paid last year. If you want to lower your tax bill for this year, now is the time to act. This column’s annual tax plan- ning review will take a “tips and fraps” approach to help you save tax now while avoiding some com- mon — and sometimes costly — mistakes. Our guide to these tips, who will keep us out of those traps, is Elio Luongo, senior manager with Peat Marwick Thorne, chartered accountants. Note that these suggestions are - general in nature and that the rules change constantly. Also beware GAAR (the general anti-avoidance tule). So you should check how this information applies to your situation and possibly seek expert advice before taking any steps. Today, we'll focus on registered retirement savings plans. Future columns will deal with income- splitting and self-employment. Circle or highlight points that could save you tax or otherwise affect your financial planning. TIP: Contribute early in the year to an RRSP. This allows interest and other investment income to accumulate tax-free for an extra year. Over the long term, this could easily increase the total value of your RRSP significantly — compared with contributing in January or February for the previ- Qus year as most people do. TRAP: Calculate your contribu- tion carefully. Base it on your eared income and pension adjust- ment (PA) in the previous year (in 1990 for the 1991 tax year, and so one). Don’t exceed the $8,000 lifetime over-contribution limit. TIP: Make a non-deductible, $8,000 over-contribution to an RRSP. The money will grow tax- free. TRAP: The $8,000 is a lifetime maximum. If you exceed that amount, you will pay a penalty of one per cent a month on the EXCESS. Over-contributing makes the most sense if you have spare cash now earning taxable investment income and you know you will be able to claim and so eliminate the over-contribution in the future. If you don’t use up the over- contribution, the money will be taxed a second time when you withdraw it. The tax-free growth can exceed this double taxation, but calculate how long the funds must remain in the RRSP for this to occur in you situation. TIP: Contribute to spousal RRSP if the (recipient) spouses’s Bo. we ger sera ANOTHER RUN TO Sidney Spit Provincial Park by the Hyster, the Little Ferry leaving the foot of Beacon Avenue, was made Saturday after a long delay while boat traffic tied up the area prior fo the G.B. Church being towed to sea by a tug. The ferry makes numerous trips to the island Aaily and no reservations are required. McKIMM & LOTT BARRISTERS, SOLICITORS & NOTARIES GEORGE F. McKIMM — Retired NICHOLAS W. LOTT R.G. WITT LAPPER D. MAYLAND McKIMM _ 9830 FOURTH ST. SIDNEY, B.C. 656-3961 _ Personal Injury/ Real Estate Criminal Law/ Wills & Estates Family Law/ Commercial & Co. Law Municipal Law FIRST 1/ 2 HOUR CONSULTATION FREE CHRISTOPHER S. LOTT TIMOTHY F. LOTT GRANT S. WARRINGTON GANGES CENTRE BLDG. GANGES, B.C. 537-9951 income is likely to be lower than the contributor’s income when the money is withdrawn. The contri- butor gets the tax break now, the recipient pays less tax when the money comes out. TRAP: Beware the rule which says the contributor has to pay the tax if the spousal planholder takes out the money within three tax years of the last contribution to any spousal plan. If you contribute by Dec. 31, 1991, the spouse can take out the money as early as Jan. 1, 1994. But if you contribute just a few days later, in January, 1992, then the spouse has to wait until 1995. The three-year rule is waived if the spouse uses the RRSP to buy an annuity or a minimum-payment RRIE TIP: Use RRSPs to average income and lower total tax. If your income fluctuates, contribute to an RRSP in high-income years and withdraw the money in low- income years. TRAP: Make sure the tax you save now by taking money out of the RRSP in low-income years will more than make up for the long-term tax-free compounding if the funds are left in the plan. ‘Circle or highlight points that could save you fax or otherwise affect your financial planning’ Note that up to 30 per cent tax is withheld on cash withdrawals. Consider withdrawals in maxi- mum $5,000 amounts so only 10 per cent tax is withheld — but then set aside enough money to pay any extra tax you will owe the following April 30. TIP: Transfer up to $6,000 a year of periodic payments from your registered pension or deferred profit-sharing plan to a spousal RRSP. You can do this through 1994. TRAP: This special $6,000 rol- lover is based on your pension/ DPSP income in the current tax . DAN MARTENS TheReview Wednesday, August 14,1991 — Al year. It doesn’t reduce your regular contribution limit. Let’s say you had earned income last year (from employ- ment or possibly revenue prop- erty) and pension/DPSP income this year You could put up to $6,000 into a spousal RRSP and also make a regular spousal contri- bution based on last year’s eamed income. Also see the previous comments about the three-year rule and relative tax brackets of the contributor and recipient. Mike Grenby is a Vancouver based columnist and independent financial adviser who works with individuals; he will answer you question as space allows in his column - write to him c/o...The Review 9726-First St., Sidney B.C. V8L 3C5. Isyour_ . tax bracket keeping your money boxed in? Callime today and find in out how Investors can help you save taxes. CALL R.1. (TOM) FITZ-GERALD 388-4234 : Investors ¥, Group Building futures since 1940. Contig CONGRATULATIONS _ STRAIGHT TALK | 7 ABOUT : YOUR MONEY. [| GURNEY SMITH & ASSOCIATES LTD. FINANCIAL CONSULTANTS ¢ LIFE UNDERWRITERS SUITE 6 - 9843 2nd St., SIDNEY (In Marina Court) 656-2411 1205 C Verdier Ave, (Brentwood Bay Shopping Centre) 652-1482 leet ett tT PEE EE ELE EEE wan |Feb! [Ma ay. EES REALTY PENNY BARWISE JOP PRODUCER The management and staff of Century 21 Saanich Peninsula Realty Lid. take pride in congratulating Penny Barwise for achieving the position of top producer for July. We are also proud to congratulate Dan Martens and Doug Grover for their outstanding performances. For the service that earns these successes call: Penny, Dan or Doug 656-0131 FROM RANDY STREET PRESIDENT CENTRAL SAANICH LIONS CLUB We would like to take this opportunity to thank all the Volunteers, C.S. Parks | __ Staff, Equipment & Supplies} Friends & Supporters for making our Community | Festival/Fund Raisera | “SEE YOU NEXT YEAR” SAANICH PENINSULA Donated and all our Great Success! LTD. DOUG GROVER Be | 4