Business TheReview Wednesday, January 15,1992 — The one-two-three of an RRSP Contributing to an RRSP under the new rules can be as simple for you as ~Q-1-2.” Your earned income in 1990 (“0”) determines how much you can contribute and deduct for the tax year 1991 (“1”). And your deadline is Feb. 29, 1992 (“2”). Revenue Canada should have sent you late last year a notice showing your contribution limit. But check that figure, as some of those statements were incorrect. The rule: Your 1991 deduction is $11,500 or 18 per cent of you 1990 earned income, whichever is less. If you belonged to a registered pension or deferred profit-sharing plan, you must then subtract your pension adjustment (PA) for 1990 (which should have been on your 1990 T4 or T4A slip) and any net past service pension adjustment (PSPA) for 1991. Contact your payroll or personnel department for more information on PAs and PSPAs. Note that special rules apply if you are involved in a family busi- ness pension plan. And also review the following key features of pension and RRSP reform. The $8,000 over-contribution: You may contribute up to $8,000 more than you RRSP limit. (This is an ongoing, not an annual, limit.) Any amount above the limit attracts a penalty of one per cent a month. when it is withdrawn. The carry-forward rule: If you don’t make your maxi- mum contribution, you may carry forward the unused “contribution room” up to (in most cases) seven years. That could make sense, for example, if you were in the lowest tax bracket last year but will be in a higher tax bracket this year. Just make sure you will have the money to make the catchup contr- butions in future if you decide to spend now and save later. And always check the cost of postpon- ing both the current tax deduction and the tax-free growth until you do make the contribution. (How- ever, you may contribute now and carry forward claiming the deduc- tion.) The $6,000 spousal pension rol- lover: If you have regular income from a registered pension plan (note that ‘Ideally, you should contribute fo an RRSP in a high tax bracket and withdraw the funds in a lower (or possibly the same) fax bracke?’ You may not deduct the over- contribution, but this money can grow tax-free in the RRSP. How- ever, unless you use up the over- contribution in a future year, you will be taxed again on this money CPP, OAS, RRIF and an annuity don’t quality) or deferred profit- sharing plan, you may transfer up to $6,000 a year to your spouse’s RRSP (provided your spouse is 71 or younger). This special contribu- Name changes at Sidney siore as Macleod’s goes into receivership The parent company is gone into receivership but local operations at Macleod’s hardware store won’t change, owner-operator Brad McCluskie said Monday. Macleod’s-Stedman Inc. filed for receivership Friday, which in effect makes McCluskie’s fran- chise contract null and void. Instead of going under, like about 126 other Macleod’s stores across Canada, the Sidney store is in the process of changing its name and affiliation — to True Value Stores. “The only effect locally is the THE HOUSE DRESSING € © IMP ON IN 3¢ itl to See es BM aa - Mo signs will change,’ McCluskie said. About 260 Macleod’s stores will be signing on with the Chica- go-based True Value, he said. “In three years time it will be the best thing to happen to the independents,’ McCluskie said. “Tn the short term there will be some bumps.” There was 405 Macleod’s stores in Canada. True Value has about 12,000 stores in the Unites States. tion/deduction is in addition to the preceding limits. This spousal rollover is based on your 1991 pension/DPSP income and, as long as you contribute by Feb. 29, will reduce your 1991 taxable income. You may use any funds to make this contribution but the carry-forward rule doesn’t apply. Here are the key RRSP guide- lines: Ideally, you should contribute to an RRSP in a high tax bracket and withdraw the funds in a lower (or possibly the same) tax bracket. Contnibute to a spousal RRSP if the spouse is likely to be in a lower tax bracket than you when the funds are withdrawn. Even if you are older than 71, you may contri- bute as long as your spouse is 71 or younger. Maximize tax-free growth by contributing as early as possible each year for that tax year — early this year for 1992. Or at least contribute monthly. If you roll over severance pay/a retiring allowance to your RRSP. ask Revenue Canada for its Alter- native Minimum Tax (AMT) cal- culation form. This rollover, as well as any regular RRSP contri- bution, could produce an AMT bill. Contributing to an RRSP usually makes more sense than paying off a mortgage if you are in a high tax bracket, plan to leave the money in the RRSP for a long time and you can earn a good return. Then use your tax refund to pay down the debt. If you have no spare cash, bor- rowing for an RRSP can make sense as long as you don’t have chronic debt problems. Aim to pay back the loan within a year. Make sure your RRSP invest- ments are performing well, that you have an appropriate mix of guaranteed and possible equity investments. Especially because of the new tules, do some reading and deal with the financial institutions well before the deadline. Revenue Can- ada has already published its new Pension and RRSP Tax Guide, CCH Canadian Limited has Unde- rstanding Your RRSP (1991-1992 Edition), by R.D. Hogg and M.G. Mallin, and other unbiased RRSP guides will become available shortly. Mike Grenby is a Vancouver- based columnist and independent financial adviser who works with individuals; he will answer your questions as space allows. Write to him c/o The Review, 9726 First Street, Sidney, B.C. V8L 3C7. Saanich Schools Fax: 656-2382 Moore, Roberts & Co. 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