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"A Family Tradition for 128 Years" PORT PERRY STAR - Tuesday, January 17, 1995 - 13 TAX TALK Spousal RRSP: tax advantageous investing If you're married, you already know many of the advantages of combining two sets of finances. But you may not be aware of the benefits of in esting in two Reg- 1stered Retirement Savings Plans (RRSPs) under one spou- sal plan. RRSPs offer two significant benefits for anyone: tax deduc- tions for contributions; and tax sheltered investing. However, married couples in which one partner earns less than the oth- er can generally further in- crease their tax benefits by in- vesting in RRSPs for each spouse under a spousal plan. The idea is to provide two streams of income during re- tirement, instead of one. This is because tax brackets increase with income, so the tax on one retirement income will be high- er than on two incomes totalling the same amount. Suppose you and your spouse were currently receiving a $50,000 annual income from a single: RRSP. Federal and pro- vincial taxes would eat up about $20,000 of that. But the total GUARANTEED INVESTMENT CERTIFICATES e ANNUAL RATES ° Rates subject to change without notice SCUGOG FINANCIAL SERVICES A DIVISION OF CRESSBROOK FINANCIAL PLANNING LTD. 250 QUEEN STREET - PORT PERRY Serving Scugog for Over 15 Years" PHONE 985-3832 taxes on two RRSP incomes of $25,000 each: would only be about $13,000 -- putting "you $7,000 ahead. What's more, tax- es are further reduced when both spouses become eligible at age 65 for the pension income tax credit. Spousal RRSPs were intro- duced in 1974 to allow married couples to take maximum ad- vantage of this opportunity, even 1f one has little or no in- come. Under the rules, both partners can contribute to each other's RRSPs. So, for instance, you could contribute to your spouse's plan even if he or she isn't. You can also continue to put money into your spouse's plan after yours ends when you are 71, if he or she is still under that age. Most couples aim to make their RRSP incomes equal at re- tirement to minimize tax pay- ments (given that other income sources are also equal). To do this, the higher income partner will generally contribute to the other spouse's RRSP. However, each partner's contribution 1s still limited to their maximum annual contribution for RRSPs (18 per cent of an individual's income up to $13,500), indepen- dent of how it is split between the two plans. If you own two RRSPs -- one for you the other for your spouse -- you should consider adding a level of diversification to your investments. In other words, you might choose to own a mu- tual fund investing in growth . stocks while your spouse might consider investing in bonds. Again two RRSPs are better than one. There are some restrictions on how money can be contribut- ed to a spouse's RRSP. You can- not move money from an exist- ing RRSP into 'a new spousal plan. Nor can you transfer your pension benefits to your part- ner's plan (although you can transfer them to your own). However, up until the end of 1994, you can transfer up to $6,000 annually of pension in- come to your spouse's plan, un- Forder-Parks Insurance Brokers Inc. Q% 985-8471 34 Water St., Port Perry, Ontario L9L 1J2 our best rate Subject to change without notice der the phase out of an earlier government rule. Should you die before your plan matures, the money from your RRSP can be transferred without being taxed to your spouse's plan, if you named him or her as the beneficiary. Funds can also be transferred if or- dered by a court as the result of the end of a marriage. Both these situations also apply to common-law spouses. Depending on the circum- stances, your tax liabilities vary if a spousal RRSP is cashed in. Spousal RRSPs don't allow cou- ples to shift investments to take advantage of one partner's low- er rate in the short term. If a holder of a spousal plan cashes it in within three years when his or her spouse last made a contribution, the contributing spouse will have to pay tax on that portion at his or her tax rate. Only after three years are the entire proceeds of the RRSP taxed at the holder's -- met the contributor's rate. However, given the brighter scenario of both spouses retir- ing happily together, the spou- sal RRSP can be a major finan- cial advantage. Like heads, two RRSPs are better than one. Courtesy of, Bob Gow, Richardson Greenshields, Oshawa When we open the business pages in these strange economic times, our eyes are assailed by such stories as the collapse of Olympia & York, or the European currency crisis. The tendency is to wonder at the magnitude of their downfall. How could these experts in their fields, known far and wide as the very best, fall prey to the markets. And if they can fall, well, why can't I? For the average investor, wary of treading where giants can stumble, the stock market can be intimidating. For these individuals, the answer to their needs could well be mutual funds, a professionally managed and diver- sified investment. Mutual funds provide a safer, more conser- vative entry into the stock market. Consider the following story: In the summer of 1987, the Edmonton-based financial empire The Principle Group folded. Many investments, such as deposits, had not been covered by the Canadian Deposit Insurance Company (CDIC), which can insure up to a maximum of $60,000 per person per institution. However, the mutual funds managed by The Principle Group were intact, even though mutual funds, like stock and bonds, are not eligible for CDIC protection. The reason why they were so fortunate is that the investors directly owned the fund's invest- ment portfolio and not the fund's manager. So when Priuciple collapsed, Metropolitan Life took over management of the fund and it was business as usual. This is one of the great strengths of mutual funds. If the manager of a mutual company ever gets into hot financial water or even goes bankrupt, the investor's money is still protect- ed. With mutual funds, managers don't own the mutual fund's units - the investors do. That is the heart of the mutual fund's security. All assets and securities, such as stocks, bonds and cash, are held by a custodian institution, usually a bank or trust fund's portfolio belongs to the investors, the fund's managers can't claim the portfolios assets as part of their company. Managers buy and sell secunties, but these assets are not acquired for themselves. And since the fund's portfolio belongs to the inves- tors, the fund's managers can't claim the port- folios assets as part of their company. This arms'-length relationship between managers and their mutual funds is a notewor- thy strength. Not one dollar of investors' mon- ey has been lost because of management bank- ruptcy, another reason why millions of inves- tors choose mutual funds over other investments. Accountability is another attractive feature of mutual funds. Mutual fund corporations must hold annual meetings to keep investors apprised of the fund's performance. Although mutual fund trusts are not required to meet this obligation, they are bound to issue detailed annual and semi-annual statements, just like corporations do. Is security costing you money? A totally- insured guaranteed investment certificate may earn 5 to 6 percent a year. However, the rate of return on many mutual funds, such as those managed by Trimark Investment Management Inc., is often considerably higher, sometimes reaching as high as 18 percent a year. Investors might wonder how their fund is managed. Open-end funds, which allow inves- tors to deposit or withdraw their money at any time, are usually run as corporations, trusts, or - as in some cases with insurance companies - as variable life policies. For tax purposes, mutual fund trusts pass to investors all Canadian dividends, interest, capital gains and foreign income less expenses. Similarily, mutual fund corporations also pass on to the investor all dividends and capi- tal gains, but they are not allowed to forward interest and foreign income since they are tax- able in the hands of the fund. However, mutual fund corporations can cut their liabili- ty by charging expenses against interest and foreign income. There may be some risk in mutual fund investment because of market fluctuations. But ask any former Principle chent: In the long run, investing in mutual funds may be safer than money in the bank. Is Your Money Safe? "...sterling." Jon Kanitz of the Fund Letter summing up rimark's reputation. He also wrote. "its careful disciplined approach to security selection has paid off for investors...and can be expected wo do so in the future." TRIMARK FUND performance as of December 31, 1994 EXE ATV BIE I YEAR JYLARS >) YEARS 15" 16° [ YEAR 3 YEARS TURN FRY IY For more information on ATRIMARK Irimark's RSP Mutual Funds contact: MUTUAL FUNDS WE MANAGE. [O OUTPERFORM. GREENSHIELDS BOB GOW (905) 434-7156 * 1-800-267-1522 111 Simcoe Street North, Oshawa, Ontario L1H 7M9 Ml returns audited by Finst & Young, Chartered Accountants. are historical annual compounded total rates of return and reflect changes in unit value and distributions reinvested They do not take mio account sales charges or administrative fees pavable by umitholders which would have reduced retims Past performance does not guarantee future vesults Your unit value and mvestigent return will fluc tu ate Important mformation about any mutual fund 1s contamed mis simplified Bed he Read your prospectus carefully before imvesting You-can obtam one from the fmancial adviser listed abo Desrgned Iv Toomark Investment Management Ta