TheReview Wednesday, January 31,1990 — C3 “‘Tax-planning: | there’s a pricetag Tax planning is one of the most important parts of personal finan- y cial planning. But sometimes you * have to pay a price now to profit later, says a CGAA news release. “Frequently, to defer tax you must set aside funds which will therefore not be available to spend _ now,” notes the current edition of Strategic Tax Planning, a publica- "tion of the Certified General Accountants Association. “When you develop a tax strat- \ egy, you must take into account your needs — so enthusiastic tax planning doesn’t leave you short of money!” For example, if you contribute to a registered retirement savings plan, that money will not be available for other uses. You will save tax with such a contribution and the money in the RRSP will grow tax-free, ideally producing more for you to spend later, even after you pay tax when you with- draw the funds. Let’s say you earn $1,000 and are in the 40-per-cent tax bracket. Do you put the money into an RRSP or not? By contributing $1,000 to an RRSP, you cancel out the $400 tax liability you incured by earning So) that $1,000. But then, while you have $1,000 in your RRSP. you have nothing to spend. If you didn’t contribute the $1,000 to the RRSP, you would pay that $400 in tax — but then have $600 left to spend. So it’s a choice of having $1,000 in your RRSP for future spending and none of that money to spend now, or of having $600 to spend now but nothing in the RRSP for the future. “As always, tax planning must be done with a full understanding of rules that are constantly chang- ing,” said the CGA tax publica- tion. And it warned: “The Income Tax Act now includes far-reaching general anti- avoidance regulations (GAAR) which will allow Revenue Canada to reassess any transaction that produces a tax benefit — unless it can be shown the transaction took place for bona-fide purposes other than to obtain the tax benefit.” Because of the uncertainty — the numerous grey areas — in tax law_and tax planning, it almost always pays to consult with a CGA or other professional adviser before you implement any tax Strategies. . Is this foo good fo Psst! Want a sure-fire invest- ment that could pay you as much as 32.9 per cent — after tax — and you don’t have to take any risks or spend any time managing the inv- estment? For once, something that sounds too good to be true actually is true. “What could be simpler - and more profitable - than paying off your debts? Yet people often over- look this best of all investments,” says a release from the Certified General Accountants Association. LY) Let’s say you have some out- standing credit card balances. Although the monthly rate might appear pleasing low, the com- pound annual rate could easily run as high as 32.9 per cent. Paying off a debt like that is the same-as earning up to 32.9 per cent on your money, and that’s an after-tax retum. So if you are in the 40 per cent tax bracket, with taxable income between about $28,000 and $56,000, you would have to earn TAX PLANNING is an inte- gral process in making you re money work for your. be true? almost 55 per cent on an invest- ment to clear 32.9 per cent after tax. Even paying down a mortgage ranks high on the CGAA list of best investments. Perhaps you have a 12-per-cent open mortgage and you have $10,000 to invest. ‘Again, if you are in the 40-per- cent tax bracket, you would have to realize a return of 20 per cent on your $10,000 to do as well after tax as paying down the mortgage. Buying or selling a home? Here’s how a Realtor helps you! 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