Business Have you made plans for what you will do after you retire? If you think you might try some part- time consulting or other self- employed activity, tax planning now could prove profitable even before you retire. Many people find playing golf, gardening and travelling aren’t enough to occupy themselves fully after the initial period of retire- ment. They miss being productive, being needed — especially if they really enjoyed the work they did before retirement. How about you? Might you be happier, personally as well as financially, if you were to continue to work a little after you retire? Ideally, you would work when you felt like it, so you could still golf, garden and travel when you wanted to. Most people earn their highest incomes, and pay the most income tax, in their final years before retirement. Yet they probably don’t feel comfortable putting money. into tax shelters because of the risks and long-term investment horizon involved. Even if you aren’t planning to retire for a while, or you don’t plan to work after retirement, some of the following steps could still save you tax if you have — or could have — a self-employed sideline. Let’s say you are married, witha spouse who isn’t working outside the home or otherwise is in a lower tax bracket than you. You pay your spouse to do the research and other work required to set up your post-retirement consulting or other self-employed business. It might take three to five years to build up your business to the point of profit, so when you retire everything will be in place. During these startup years, you might start out earning, for exam- ple, $5,000 a year from your new business. You might pay your spouse $10,000 a year for the work involved in getting the business under way. Pay reasonably but aggressively: it’s productivity that counts. If your spouse is twice as productive as somebody else you would hire, pay your spouse twice the going rate. You could also pay other family members in a lower tax bracket — perhaps children who could then pay their own education and other expenses, Or even a parent who could then support him/herself more instead of relying on your (after-tax) help. If you claim a $5,000 loss, which you then deduct from your other (employment and invest- ment) income, you save more than $2,000 tax a year if you are in the higher tax brackets. Your spouse has to declare this income. Depending on whether your spouse already has other income, the family could easily reduce its total tax bill by around $1,000 a year. If you also pay two children $2,000 a year each, you could save close to another $2,000 A year == : Preparing form your post- retirement business could involve travel. You might tag on some holiday travel to the trip. Deduct a reasonable amount of the expenses — those relating to the business part of the trip — for even more tax savings. _ However — and this is the key, — you must have a “reasonable expectation of profit.’ Ottawa allows you to deduct your losses because one day it hopes to tax your profits. So you must draw up a business plan to demonstrate this “reasona- ble expectation of profit.” The plan should show what you hope to accomplish, why you feel you will make money, your marketing plans, and so on. Ask Revenue Canada for its Business and Professional Tax Guide which lists many of the deductions you may claim. Ask the Royal Bank for its two free Your Business Matters guides — much less after taxes. We have an individual who is Present value of asset is Adjusted cost base Assumed growth rate Capital gain Tax capital gain @ 75% Net value after tax value at life expectancy, So ... pay taxes! 1 assets, the estate is forced to taxes. free cash required to meet one to help you start and run a self-employed business (it includes a sample business plan) and one to provide sources of further information. Buy or borrow Home Inc., by Douglas and Diana Gray TheReview Wednesday, April 22,1992 — Now is the fime to do tax planning for retirement years (McGraw-Hill), which provides information on running a small business out of your home. (Note that you may not use home office expenses to create or increase a loss, although in this case the expenses may be carned forward for possible use the following yeat.) : Keep all receipts and careful records. Have a small log book in your car. Have business cards and letterhead printed. Open a separate account for your business. HOW MANY YEARS WENT TO PAY TAXES? Written by Ron Gurney Financial Services Limited An individual owns an asset and hopes that it increases in value over time. Sometimes this increase in wealth is called “the agony of success” because taxes are levied on this appreciating asset upon disposition. So even though an asset may appreciate substantially over time it will be worth Life expectancy of individual is Fair market value at life expectancy Estimated tax payable @ 50% marginal rate NICHOLAS W. LOTT D. MAYLAND McKIMM G. LIANNE MACDONALD 9830 FOURTH CHRISTOPHER S. LOTT TIMOTHY F. LOTT _ ST. SIDNEY, B.C. 656-3961 McKIMM & LOTT BARRISTERS, SOLICITORS & NOTARIES R.G. WITT LAPPER GRANT S. WARRINGTON GEORGE F. McKIMM — Retired Personal Injury/ Real Estate/ Criminal Law Wills & Estates/ Family Law Commercial & Co. Law/ Municipal Law FIRST V/ 2 HOUR CONSULTATION FREE GANGES CENTRE BLDG. GANGES, B.C. 537-9951 2 Let’s examine the following example and see just how many years of your assets’ growth go to Revenue Canada. 90 $1,000,000. $ 100,000. 79 4% $3,118,651. $3,018,651. $2,263,989. $1,131,994. $1,986,657. The asset has the same gross value at age 6/7 as the net 12 years of appreciation go to How do we protect our estates from this tax problem? Every individual may transfer unlimited amounts of capital property ! at death, to a legal spouse, | property transferred until the spouse subsequently dies or disposes of the property. With many estates the major problem is liquidity. If debt obligations are greater than liquid without indurring tax on the sell assets to pay debts. There | are three ways your estate can pay the taxes. 1. Liquidate Assets This option can be undesirable if the required sale of valuable assets in turn triggers taxes to pay 2. Bank Loan The second option available to pay taxes is to | acquire a bank loan. How much will this cost? | 3. Survivorship Insurance Program This is the discounted way to pay taxes. This program is designed to provide the tax Revenue Canada’s demands | precisely when it is needed most, upon the death of the last surviving spouse. This tax exempt program Is much less costly than conventional insurance plans and provides the most cost effective solution to the capital gain dilemma. 3 Whatever method you wish your estate to use, the time to plan is | now. Sit down with your accountant, lawyer or financial planner and work out a smooth transition of your assets. dollars and start saving toward a Call: RANDY SMITH Chartered Financial Planner 388-4234 Investors Group Call Your Professional Advertising Representative Today! CORRIE MOROZOFF 656-1151 Who’s taking Advantage of your Pay Cheque, you, or the Taxman? At Investors, I'll help you save tax more comfortable financial future. TeReview ae: STRAIGHT TALK ABOUT a YOUR MONEY. TCE EEC ER EEE Er