During the Barkerville period, a box of gold, representing several months of back breaking toil in the B.C. interior, and a good-sized fortune, had been carefully guarded along the Cariboo Trail southward toward the safety of bankers in the larger settlements.
During this period, the town of Yale was the bustling southern shipping terminus for miners who wisely avoided the treacherous waters of the Fraser Canyon on this dangerous frontier journey from the goldfields. It should have been a time of celebration. The stage coach had not been robbed. The fortune was poised to be loaded on to the safety of a large commercial vessel, and the worst part of the journey lay behind the miners.
Unfortunately, as the box was being hefted on to the ship, it slipped out of the carrier's hands and fell in to the murky, relentless waters of the Fraser below, quickly disappearing beneath the muddy surface, never to be seen again. Despite countless attempts to dredge the area in search of the package, it was never found, or at least never reported again. It simply vanished.
Paying taxes unnecessarily is like watching gold dust drift beneath an unforgiving waterway. There is no silver lining to this sad story; the money is gone. Laws are established to encourage certain sorts of investments, and to relieve taxes here and there. All that stands between holding on to the extra money and letting it slip through your hands is a good working knowledge of those laws, and a proper implementation of them.
Here are a few more pointers, in addition to the ones listed last week:
Income Splitting
Income splitting strategies shift investment income and capital gains from being taxed in your hands, at a higher marginal tax rate, to the hands of your lower-income family members to reduce your family's overall tax bill. If a family member has no other income, they could earn up to $10,000 of interest income, $20,000 of capital gains or $30,000-$50,000 of Canadian dividends tax-free annually through income splitting.
Expense Funding Strategy
Tax efficient investing and overall tax savings for your family can be accomplished by having investment income taxed in the lower-income spouse's hands. By having the higher-income spouse pay all the family expenses, it allows the lower-income spouse to save their earnings and invest them. The resulting investment income can then be taxed at the lower-income spouse's tax rate.
Spousal Loan
If you have substantial annual investment income, consider lending money to a lower-income spouse at the Canada Revenue Agency's (CRA) current prescribed rate of one per cent in order to take advantage of that spouse's lower marginal tax rate on future investment income. This strategy may result in overall annual tax savings for your family, with even larger tax savings at retirement arising from years of accumulation of capital in the lower-income spouse's hands.
Family Trust Loan
Consider using a family trust to lend funds at the prescribed rate to other family members such as children or grandchildren, who are in lower tax brackets.
TFSA Gift
Since the income earned within a TFSA is not taxable, if you gift money to your spouse or adult child to contribute to their TFSA, the income and growth in the account will not be attributed back to you. Keep in mind that although gifting assets allows you to split income, the assets you gift are no longer yours but become the
property of the receiver.
Consider Insured Annuities
If you rely on GICs or similar interest-bearing investments for income, you are paying tax at high rates on that interest income. Consider an alternative to interest-only GICs that will significantly increase your yield while minimizing taxes.
The insured annuity results in a higher monthly cash flow and more after-tax income than would otherwise be achievable through interest-only investments like GICs.
Mark Ryan is an advisor with RBC Wealth Management, Dominion Securities (member CIPF) and can be reached at [email protected].
This information is not intended as nor does it constitute tax or legal advice. Readers should consult their own lawyer, accountant or other professional advisor when planning to implement a strategy.
