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Adrian Mastracci, president of KCM Wealth Management, says “Investments can be planned, taxes can be tamed. Anticipate your financial happenings for 2006 and tweak your game plan to accommodate them." |
For Immediate Release
Vancouver, BC (May 4, 2006): It must be the rites of spring. The opportunity beckons to polish the 2006 investment and tax planning crystal ball.
Someone once said, “There will always be death and taxes. However, death doesn't get worse every year.”
Adrian Mastracci, investment counsel at Vancouver’s “fee-only” KCM Wealth Management comments, “First get familiar with the Federal Budget measures of May 2nd that apply. Together with the recent income tax filing, they assist in getting a jump on planning the 2006 money matters.”
“My advice is to start the planning exercise early,” notes Mastracci, “Get a handle on your 2006 expectations while the 2005 results and the new provisions are fresh at your fingertips.”
“Investments can be planned, taxes can be tamed,” continues Mastracci, “Anticipate your financial happenings for 2006 and tweak your game plan to accommodate them.”
Here is my summary of key activities to assist the 2006 planning:
Individuals
- Estimate your expected incomes, all deductions and tax credits for 2006. Project your taxable income for 2006 along with some “what if” scenarios.
- Determine whether you are subject to income tax installments. Seek out your tax deferral requirements early in 2006, and buy only if the investment prospects are favourable.
- Refresh your retirement goals and the size of investment portfolio required to sustain them. Review the investment portfolio direction and the financial health of the employer pension plan.
- Donate securities that have gained in value directly to your favourite charities. You won’t pay any tax on the capital gain. This also assists if you have philanthropic aspirations.
- Evaluate the tax measures of seeking capital gain and dividend income. The May 2nd budget provision on dividends equalizes the two tax rates. Provided that the Provinces go along with it. So far Quebec, PEI, Manitoba and BC have indicated they will harmonize.
- Review your capital gain and loss strategy. Consider the losses you may be carrying forward from 2005 and revisit your adjusted cost base entries from the $100,000 exemption of 1994.
- Start your 2006 RRSP contribution to your account or the spousal plan. If an RESP contribution has a place in your plan, it must be made by December 31.
- If you turn age 69 in 2006, review the alternatives available on converting your RRSP to a RRIF. The conversion must be finalized by December 31.
Business Owners & Professionals
- Revisit your vision for the business succession. This may be one of the best investments you will ever make.
- Examine the remuneration mix appropriate for your business. A combination of salary and dividends may make sense.
- Review your personal compensation and that of other family members. A blend of salary and bonus totaling $105,600 in 2006 creates the maximum $19,000 RRSP room for 2007.
- Ensure that a current shareholder loan will not be included in your income as you approach the second fiscal year end since it was issued.
- Analyze if crystallization of your business, fishing property, or operating farm qualifies for the $500,000 lifetime capital gain exemption. Full use means tax savings of nearly $110,000 in BC.
- Take advantage of the reduced corporate tax rates on small business income. Review the capital gains deferral rules if you sell your business and buy another qualifying one.
Cross Border Connections
- Canadians who spend time living in the USA may be required to file a US tax return. It is important to determine whether you meet the “substantial presence” test.
- Canadians who own property in the USA should review the estate tax rules that apply. Renting your property may subject you to withholding taxes.
- Canadians who carry on business in the USA may be required to file a US tax return.
- US citizens living in Canada should seek advice on the tax filings that the IRS requires. You run the risk of losing exemptions to which you are entitled if you do not file.
- US citizens who own Canadian private companies ought to check the US tax treatment of receiving investment income like capital dividends.
“The centerpiece for financial success is the game plan that outlines the policies and strategies,” concludes Mastracci, “Jump starting the investing and tax stuff early in the year is an important part of keeping it on target.”
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