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| Adrian Mastracci, president of KCM Wealth Management, says
"The bottom line. This is an exceptional planning opportunity that presents
itself on rare occasions. Have a close look at it." |
For Immediate Release
Vancouver, BC (June 10, 2002): Yes, some things are going up these days!
And just what could they be, you ask curiously?
Well, the first and only hint is that the Canada Customs and Revenue Agency
just announced the prescribed interest rates that will be in effect from July
1, 2002 to September 30, 2002.
The new prescribed interest rate used to calculate taxable benefits for employees
and shareholders from interest-free and low-interest loans from their companies
will be 3%.
Similarly, the new prescribed rate applicable to loans made to a spouse and
children will also be 3%.
This is an increase from the current 2% rate applicable to such loans made
from April 1, 2002 to June 30, 2002. Hence, there is some good news. It is more
beneficial to implement this provision by having all documentation in place on
or before June 30, 2002.
Where applicable, this planning opportunity should not be missed, especially
if one spouse is in a lower income tax bracket. The other good news is that the
2% loan rate can be locked in for a long period of time.
Say one spouse loans $100,000 to the other at 2% who invests it at 5%. The
recipient spouse is then taxed on the 3% spread. In this instance, an annual income
of $3,000 is shifted to the lower income spouse.
Loans from a company to an employee or shareholder can be made for a variety
of reasons. The more common ones are to purchase an automobile, a principal residence
and an investment portfolio. However, special attention has to be paid to the
shareholder loan rules so as not to incur adverse tax implications.
For spouses, the goal of the exercise is to equalize both the income and asset
levels, as much as possible. This way a family unit pays less income tax because
each spouse benefits from the graduated income tax scales.
The bottom line. This is an exceptional planning opportunity that presents
itself on rare occasions. Have a close look at it.
Now, aren't you glad you were curious!
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