Adrian Mastracci, portfolio manager at KCM Wealth Management, says “Think of it as trying out the strategy before you commit. The overall ‘what if’ impact can be a real eye opener."

Vancouver, BC (April 9, 2007): Some people get to dance with the stars. Many others dance frequently. You’re probably wondering just where do you dance the ‘what if’ two-step.

An unknown author once said: “You can dance anywhere, even if only in your heart.”

Adrian Mastracci, fee-only portfolio manager at Vancouver based KCM Wealth Management notes, “Dancing the ‘what if’ two-step can be mastered by anyone. The learning curve is short.”

The ‘what if’ is not about dancing on your feet. Rather, it’s dancing in your mind. Coordinating your investment strategies with your income tax aspects. Gliding gracefully and effortlessly.

Investing is far from a static activity. The two-step part of the dance is:

• What if the mix of investment and/or other incomes were to change?
• What would the new tax implications be versus what’s now being paid?

Some may pursue improvements within a different mix of interest, dividends and capital gains. Business owners may vary remuneration or use the $750,000 exemption. Retirees may have to reconcile splitting pension with the OAS clawback. Spouses can explore the optimal family taxation.

The accompanying 2007 sample planner in PDF highlights the impact of changing the dividend and capital gain receipts. The exercise can be created for any Province, Territory or non-resident situation.

Think of it as trying out the strategy before you commit. The overall ‘what if’ impact can be a real eye opener. You see the estimated results quickly. Then decide and tweak your game plan.

You can ‘what if’ any combination. It’s a very powerful tool for your game plan.

Here are ten selected issues to ‘what if’ for the 2007 dance:

1. Tax smart investing

First, understand the tax paid on interest, dividends and capital gains. All are subject to income tax, but the rates are different. The highest 2007 individual rates for some Provinces look like this:

Combined (Federal & Provincial) Highest Tax Rates for 2007*

Make sure your investing is tax smart. For example, in BC the highest tax rate is 18.5% on eligible dividends and 21.9% on capital gains. Compare that to 43.7% on interest and salary. Appreciating these differences helps design the right investment mix. A mix that focuses on after-tax returns. Tax friendly strategies that leave more in your pocket.

2. Pension income credit

The first $2,000 of qualifying pension income gives rise to a tax credit. The type of income eligible for the pension income credit differs depending on age, for those under 65 and those 65 or more. For some, arranging the finances may benefit from converting a portion of the RRSP to a RRIF.

3. Pension income splitting

In 2007, spouses and common-law partners can elect to split up to 50% of the pensions that qualify for the $2,000 pension credit. It’s possible to benefit from the pension split, but lose ground in other tax areas. Say when OAS clawback applies or qualifying for medical expense credits.

4. Donate securities

Donate securities that have gained in value directly to your favourite charities and private foundations. You won’t pay tax on the capital gains. Your donation receipt is the market values of the securities.

5. Capital gains and losses

Review your capital gains and losses. Consider the losses you may be carrying forward from 2006. Revisit your tax cost entries from the $100,000 capital gain exemption claimed in 1994. Don't be afraid to lock in a gain. Especially if you have a loss position that has faint hopes of turning into a profit.

6. RRIF conversions

Converting the RRSP to a RRIF is now changed to age 71 from 69. Additional RRSP contributions can be made by some, subject to available room, for two more years. Minimum RRIF withdrawal rules are waived in 2007 and 2008 for RRIF owners turning 70 or 71 in 2007, or 71 in 2008.

7. RRSP

Perhaps, it’s time to use the RRSP unused room to your account or spousal plan. Investors who don't need RRIF income during age 70 or 71 may make additional RRSP deposits for two more years.

8. Splitting CPP

CPP can be split with a spouse or common-law partner when the younger one attains age 60. Say the monthly entitlements are $200 and $800 respectively. The result is $500 received by each. This could reduce, or create, OAS clawback for some.

9. OAS clawback

The OAS clawback starts near net income of $63,500 and is all paid back at about $102,200. It's also affected by the higher dividend grossup amounts. It may be more beneficial for dividend income to be received only by one spouse. Alternatively, in some disproportionate amount.

10. Lifetime capital gain exemption

Your business, fishing property, or operating farm may qualify for the lifetime capital gain exemption. It’s increased to $750,000 in 2008 from $500,000. It’s limited to $625,000 after budget day to the end of 2007. Using the $625,000 exemption in 2007 saves $121,875 in Alberta, $136,560 in BC or $145,000 in Ontario. However, it may trigger some Alternative Minimum Tax.

We’ve had many new and revised tax provisions recently. This may be an opportune time to refresh the game plan. Remember that some tax rules benefit you in one area, but cost you in other areas. The ‘what if’ scenarios can easily demonstrate ways to improve your overall situation.

There you have it. Learning to dance this two-step is simple. The power of the ‘what if’ tool is very strong. And it delivers true value. Make it your friend for life and you’ll keep more of your nestegg.

Happy dancing. I welcome your contact.

NOTE: The information provided above is intended for general informational purposes only. It does not constitute advice for anyone's specific situation. Everyone should always first consult directly with their advisors to determine the appropriateness of any information contained above before taking any action. KCM Wealth Management Inc. assumes no responsibility for any loss or damage arising from the use of, or reliance upon the above information.