Ralph Moss Limited

RETIREMENT PLANNING

Trust your family for tax breaks

Diverting income may prevent benefit drawbacks

The virtues of saving are deeply ingrained in Canadians. However, older Canadians may actually find they can save more by giving away some of their assets.

Consideration No. 1: Unless it's within the shelter of a tax-deferred plan such as a Registered Retirement Savings Plan (RRSP), every cent of investment income you make is taxed to some extent by the government.
For a top-bracket taxpayer earning interest income, the tax bite can run to 50% or more.

Consideration No. 2: If you're over 65, everything you earn decreases your entitlement to benefits such as Old Age Security (OAS).
The new Seniors Benefit, slated to come into effect in 2001, will make it even more difficult to collect from the government. A single person reporting income of just $52,000 will get no benefits whatsoever. For couples, the threshold is $78,000.

The family way With the government taking more than ever and becoming increasingly less willing to give anything out, what can you do? A family trust is one option to explore.
By setting up a family trust, you, as trustee, can divert annual investment income to beneficiaries such as unemployed or under-employed children in lower tax brackets. Or you might choose to divert income to your grandchildren, to cover their education expenses.
Meanwhile, your personal tax returns will show a lower income, meaning that you may not have to forfeit your government pensions and other benefits. If you find yourself short of funds, you can always dip into your investment capital, which is probably earmarked to go to your children or grandchildren anyway.

If you think a family trust might benefit you and your family, consider a formal review to determine the most effective setup. Considerations should include your overall financial, estate and investment plans, as well as taxation and legal issues.

GuidePostThe Spousal RRSP at a glance

What it is: A spousal RRSP is a registered plan to which one taxpayer contributes, while the assets in the plan are registered in the name of the contributor's spouse. Common-law unions are considered eligible if the two partners have lived together for a year or more, or if they have children.
When to use it: A spousal RRSP is a tool for long-term retirement planning. It's most effective when used to equalize pot-retirement income, by ensuring that both spouses have similar incomes
Contribution limits: The total contributed to your own and to spousal plans cannot exceed your annual maximum contribution (plus any contribution room that has been carried forward). For 1996, the limit is 18% of the previous year's earned income, to a maximum of $13,500 (;plus any applicable pension adjustment).
How to start: Contributing to a spousal RRSP is just like contributing to your own. You can open a spousal plan just as you would open your own RRSP.