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THE HERALD Wednesday October Money Matters Canada Savings Bonds represent unique investment instruments GIC RATE MONEY CONCEPTS B731877 By PAUL As regular as the leaves turn color Moving through October the radio and television stations are filled with commercials paid for with your tax dollars stressing the wonders of Canada Savings Bonds CSBs are unique investment that are accepted questionably They are perceived to be guaranteed no risk in vestments and they are unwittingly every fall by most Canadians However risk is not overcome by simply allowing an investor to get their money back anytime When you consider the three ma changes that have been discovered by the government in recent years you II soon discover Canada Savings Bonds hold little appeal for the discerning in vestor First CSBs hold no minimum rate guarantee after the first year In the past there were floor rates but not now There s no more built in protection from a drop in interest rates Second recent issues of CSBs have been priced less com than other investment ITS YOUR MONEY PaulJ Rockrt alternatives and even when short term rates change significantly during the year and Canadians start cashing their bonds the government is slow and stingy in making adjustments Third tax reform has eliminated the investment income deduction making CSBs less attractive to investors who used that deduction to shelter bond interest from tax They are now taxed from first dollar of in Finally there is the effect of in flation Let say for example that you bought a bond and planned to hold it for vears This year the rate is 10 S but with interest rates trending down and no rate guarantee on the bond after year one vou mav average only 10 for the five vears Lets assume inflation will average 5 over the next five years In real terms that means that your original will lose of its value in true purchasing power each year True it will still have a face value of but it will only buy 773 of goods or groceries five years from now Now lets consider the effect of income tax At the tax rate of you will have only out of every in interest that your bond earns The net effect of tax and is that in this tax bracket you will have real growth your money in the lowest bracket of 27 you will realize 2 55 real growth and in the top bracket of you will gain 27 Are really a risk free place to put your money I don think so Many people buy CSBs on the payroll savings plan Do you know that you have to pay ap proximately per week for weeks to buy a 1 bond That s You are paying for the bond interest as it ac cumulates with after tax money then the government taxes you on it Neattnck CanajunEh What are the alternatives Well it depends on your invest ment objectives If you re just go ing to cash in the bond next year to buy Christmas presents or head to Florida why bother checking alternatives If you are saving for the medium term say 5 to 15 years maybe a house down payment you will get very little growth it probably will take years rather than to reach your objective If you are saving for retirement either inside or outside of an RRSP you owe it to yourself to check out the many alternatives that will best suit you If your objective is either of the last two medium or long term it could be in your best interest to talk to an independent financial planner He or she will have knowledge of various tax saving alternatives as well as the availability of financial products from a large number of financial institutions to tailor a custom plan for you For more information contact Peter MBA Regal Capital Planners Ltd 10 Fagon Drive Georgetown Ontario or phone Paul J Rocket is the author or the best seller Why I Invest In Mutual Funds and President of Regal Capital Planners Ltd FOR ASSISTANCE WITH ALL TYPES OF MORTGAGE FINANCING Residential Commercial DAVE KRAUSE 873 Income tax changes should be noted By BRIAN S LESSOR TAX While there are no proposed changes to the basic federal in come tax rates for 1990 income brackets will be indexed for infla The federal surtax has been increased to 5 for 1990 in 1989 of federal taxes otherwise payable and the additional high income surtax has been raised to 15 in 1989 of basic federal taxes over In addition to the increase in the federal surtaxes there are some other changes and planning points that I would like to bring to your attention AL OF INTEREST INCOME Interest on debt investments acquired after or where the terms of an investment have been extended or materially changed after 1989 must now be reported on an annual basis for tax pur poses For investments acquired before you may continue to report interest based on the three year accrual rule unless you elect to report such income on an an nual basis The old rules allowed you to defer tax on interest in come up to three years REGISTERED SAVINGS PLANS The contributions limit to a Registered Retirement Savings Plan remain the same Brian Slessor Dollars and Sense for The limit is 20 of earn ed income to a maximum of for individuals who are not members of a Registered Pen sion Plan or Deferred Profit Sharing Plan For individuals who are members of either of these plans the limit is of earned income to a max imum of less any made by an individual to an REGISTERED RETIREMENT INCOME FLND RRSP s must be matured before December of the year that the taxpayer turns age At this time the taxpayer has various options receive all of the funds from the RRSP which will be subject to withholding tax and pay taxes on the whole amount received in the year HEART AND STROKE FOUNDATION Of ONTARIO IMPROVING YOUR ODDS AGAINST CANADAS 1 KILLER receive annuities which will quality as retirement income transfer the funds in the plan to a Registered Retirement In come Fund With a RRIF only the amount received by the taxpayer in each subse quent year of retirement is taxed Legislation requires that a minimum amount be withdrawn each year The remainder of the funds stay within the and maintain their tax deferred status A permits a taxpayer to spread the receipt of funds cumulated in their s over the years between the time that the is estabKhed to the age of Previously a taxpayer could establish a only after he reached the age of 60 Under the present tax legislation a can be established at any age REGISTERED EDUCATION SAVINGS PLANS With the tightening of the in come attribution rules in recent years the Registered Education Savings Plan has become an attractive income- splitting instrument and option to save for a beneficiary s educa tion The contributions made by the taxpayer to an are nol deductible when computing in come but do allow the for income splitting and the deferral of tax on the RRSP until the funds ire withdrawn In light of the recent popularity of the the government has put additional restrictions on in its February Before this budget there were no innu limits the cumulative contributions limit is per pi This allow contributors to design lint ici and effectively inert total per cumulative contributions beneficiary The February budget introduc ed a restriction on total annual contributions to RESP to 500 per beneficiary The cumulative maximum by all contributors was also restricted to per beneficiary For existing s no further contributions may be made for a beneficiary if total contributions for that beneficiary exceed 500 Effective for and subsequent years an that has been in existence for more than years will cease to be a registered plan Brian is an Investment Executive with ScotiaMcLeod Questions should be directed towards Brian who can be reach at 8632825 Call collect if outside Toronto Good service good coverage good price Thats State Farm insurance INSURANCE AGENCY LTD Guelph SI Georgetown 8731833 Like a good neighbor State Farm is there STATE FARM INSURANCE compute sales SERVICE WE DO SERVICE And Repairs On All Computer Equipment Service Contracts Available I 416 Guelph ffn Unit Nells DRIVING SCHOOL NEXT CLASS NOV 12th DEC 5th MONDAYS WEDNESDAYS 6 30g P M For Information About Courses or Private Lessons phone 8772671 When RECESSION hits you need all the help you can get When recession hits and business goes flat the temptation is to cut costs especially your company investment in such intangibles as advertising But studies show cutting back on advertising is a mistake During the 82 recession companies that didn reduce their advertising had a much greater sales growth during and after the recession than firms that cut back So says a study by Hill of New York which com pared the sales performance ol 600 companies between 1980 and Firms that maintained or increased levels of advertising during the last recession saw an average sales increase over the five years of 275 But companies that reduced their advertising or stopped it altogether saw their sales in crease just 1 9 during that time Now more than ever it is important that we learn the lessons of the past Your advertising budget may be the most important key to your firm s prosperity maybe even its Give yourself all the help you can Invest in advertising CALL Dan Craig Jen Kim or Stacie at 877 the HERALD Home Newspaper Hallon Hills Established 1866