Business TheReview Wednesday, March 25,1992 — A20 lt helps to know all the new RRSP rules Those new registered retirement savings plan rules are still having unexpected results. If you contri- bute to your RRSP early or monthly and want to have less tax withheld from your paycheques, note the following point to avoid delay and confusion. When you ask Revenue Canada to give your employer the required waiver, you normally estimate your income for the current year — in this case, 1992. But because your RRSP contri- bution limit now is based on the previous year’s earned income, also note that figure: your 1991 eared income. Otherwise, Revenue Canada will probably calculate your maxi- mum allowable RRSP contribu- tion on the 1992 or even 1990 income. Then the reduction in tax withholding will be less than it should. This is especially likely to occur if you have your own business and can control — or are subject to fluctuations in — your income. Getting a large tax refund might feel good, but it never makes sense financially. Ottawa has had the use of your money interest-free (the budget has just extended this inter- est-free period another 45 days), and you get back dollars with less _ buying power. You may ask to have less tax withheld whenever a tax deduction or credit will create or increase a refund. That can be caused by not only RRSP contributions but also alimony paid, investment expenses, medical expenses, char- itable donations, foreign tax cre- dits and so on. However, make sure that other unexpected income later in the year won't put you in a position of owing tax. “In such a case, you should make an appropriate payment directly to your tax account before the end of the year,” said Leah Ben Canaan, waiver officer with Revenue Canada, Taxation. “That will help protect your eligibility for reductions in future years.” In other words, if you apply for a reduction of withholding at source but then end up having to pay a significant amount of tax for the year, your next request for a reduc- tion might be denied. Ben Canaan suggested you should apply toward the end of the year for a waiver to take effect the following year so less tax will continue to be withheld without interruption. (You have to make this request annually except when alimony, child support etc. are involved — then you need to renew your request only every five years). ‘You can get the necessary application form fo have less tax withheld by contacting your local office’ “We need all the requested income figures and proof of the deduction or credit involved,” said Ben Canaan, who handles several thousand waiver requests a year. “Otherwise, there could be delays, or approval for less than the amount requested.” You can get the necessary appli- cation form to have less tax with- held by contacting your local office. * OK Xx Should you sell or otherwise transfer your investment property because of the budget proposal which changes the capital gains exemption rules? This should be an investment decision first, a tax decision second. Investment property you buy now will not qualify for the capital gains exemption. Any capital gain on property you owned before March of this year will be pro- rated. _ So if your property value increases in future at the same rate as Or at a greater rate than during the period you held the property up to Feb. 29, you will still be able to claim the exemption. But if the value doesn’t main- tain that rate of increase, your ability eventually to use the exemption will be reduced as time goes by. * x Xx You need to see the new mini- mum withdrawal percentages table to understand the effect of the budget proposal on registered retirement income funds. Every financial institution and retirement income specialist should have a copy of this table by now. Under the new rule, you may keep your RRIF for life — instead of having to withdraw all the funds by the time you turn 90. This change is significant, as about one-third of those alive at age 71 — the deadline for convert- PENSION CREDIT INCOME (written by Ron Gurney Financial Services Lid., Sidney, B.C.) Prior to 1988, section 110.2 of the Income Tax Act allowed an individual to deduct up to $1,000 ifin receipt of " pension income” or "qualified pension income". For 1988 and subsequent years, this deduction has been converted toa tax creditunder subsection 118(3) equal to 17% (or $170). The Related Tax Value* in the Province of Builish Columbia is 28.33%. Interest accrued and paid out on cerfain life insurance and annuity contracts qualifies while interest eamed on GICs and similar vehi- cles does not. GICs Deposit Amount 18,500 Annual Income or Interest at 7% Taxable Portion 1,295 Tax Due at 27% 350 Related Tax Value* 0 1,295 Net Spendable Income 945 Life Annuity Term Account 18,500 18,500 1,295 1,295 350 270 2,347 1,000 270 270 1,215 2,347 Proceeds of the Term Account and the Life Annuity bypass: Accountant Appraiser Lawyer Judge will No fees No bills No charges No probate No delays * Related Tax Value is the sum ofthe tax credit, the related reduction it has on BC Tax (51.52% of federal) and associated reduction in surlax. Receive $1,000 of Pension Income and reduce your Taxes $1,295 Spendable $945 $350 By Changing income from "Earned Interest" to "Pension Income" you can reduce your tax bill. It's easy to do! $22347 SLs Spendable $2,347 Spendable. $1,215 Deposit of $18,500, assumes annual Interest of 7%, Male age 72 ing your RRSP — will live beyond age 90. If you have an RRIF or transfer RRSP funds to an RRIF by Dec. 31, you will fall under the old “minimum withdrawal” rules until age 77. That means the amount you must withdraw each year is smaller than under the new tules. From age 78 on — or if you start your RRIF after Dec. 31 — the new rules apply. Under the new tules, the minimum withdrawal required each year from age 78 is less than under the old rules and stops increasing at age 94, when the minimum reaches 20 per cent of the balance in your RRIE 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 clo The Review, 9726-First St, Sidney, B.C. V8L 3C7. House break-in Gold jewelry and British cur- tency worth over $1,000 was sto- len from a home on Gabriola Place in Sidney sometime between 7 a.m. and 5 p.m. Thursday, Sidney RCMP said. A male person about five-feet- six, slim, with dark hair and a silky maroon jacket with grey jeans was seen in the area at the time, police said. Those with information are asked to call Sidney RCMP or Crime Stoppers at 386-8477. COLUMBIA WALK-IN CLINICS ANNOUNCES 1492» Saanichton/Brentwood Clinics OPENING SOON!!! Celebrating the Arrival of Columbus Watch This Space! Who’s taking Advantage of your Pay Cheque, you, or the Taxman? At Investors, I'll help you save tax dollars and start saving toward a more comfortable financial future. Call: ERIC HURWOOD 388-4234 (Res.) Investors Group URGENT Call Your Professional Advertising - Representative Today! CORRIE MOROZOFF 656-1151 The Review oe | STRAIGHT TALK ABOUT YOUR MONEY. {EECEE EEE ee eee eect (Rates Subject to Change without Notice) RON GURNEY FINANCIAL SERVICES LTD. FINANCIAL CONSULTANTS = LIFE UNDERWRITERS SUITE 10A — 9843 2nd St., SIDNEY (In Marina Court) 656-9393 Tax Planning & Preparation Electronic Filing with Revenue Canada 9768 THIRD STREET, SIDNEY 696-3991