If the global financial crisis has translated into a personal debt crisis for some in your circle of influence, here are three issues to discuss with your tax and financial advisors:
Deducting interest costs on loans: generally, interest on money borrowed for investments that have the potential to generate interest, dividends, rent, royalties or business income are deductible.
Selling investments to reduce debt: Money withdrawn from an RRSP is taxable so tapping into your RRSP to reduce debt only creates a problem next tax season. A better alternative is cashing in a non-registered investment. You pay no taxes on return of capital.
Creating new money with which to pay debt: An RRSP contribution will reduce taxable income, possibly generating an income tax refund that you can put toward reducing debt. Or cashing in a losing investment will produce a capital loss which can be used to reduce prior years' capital gains.
Knowledge Bureau
No comments:
Post a Comment