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pmweeiderjuneasjiam lend money to lower income spouse for investments with most other interest j jji-i-i- with most other interest rates increasing ottawa has decided to mark up hs pre scribed rate and the rate it charges us on overdue tax bills or pays us on late refunds this rate may not mean much to most of us but it can be very important to employees who enjoy some perks and spouses who practise income splitting if you work for a company where you get a low rate or interest free loan to buy com pany shares or a house or whatever you have to declare an employee benefit equal to the prescribed rate effective ly you can get an interest free loan from your employer but you have to treat it as a six per cent loan thats still not bad in that a person in the 50 per cent tax bracket would really only be paying three per cent if you use your employee loan to buy investments this move doesnt have much impact as you claim the bene fit on one hand but also claim your money brian costello it as an investment expense on the other one offsets the other we often recommend income splitting through a spousal loan the higher income spouse lends money to the lower income spouse so the lower income spouse can earn investment income thats taxed at a lower rate howev er the loan must be a legiti mate loan bearing a legitimate interest rate the cheapest one going is the prescribed rate the one set by ottawa heres the rationale if you lend 100000 to your spouse and charge six per cent inter est he or she will pay you 6000 interest thats taxable income for you and a tax deductible investment expense for your spouse if your spouse invests the 100000 in mutual funds stocks or other investments that pay a return higher than six per cent the extra earnings will be taxed at his or her lower rate rather than your high rate to further increase the bene fits you should try to segregate the income earned for exam ple lets say your wife earned 10000 a year with this bor rowed money that 10000 is her own and can be reinvested in her own name without any fear of the tax being attributed back to your tax return if you believe that interest rates have been pushed too high and will fall in the future there is a fairly safe way to make a reasonable profit take a look at investing in preferred shares even though they are shares they are high ly influenced by what happens with interest rates for several reasons they generally pay a guaranteed dividend at a set rate that isnt really influ enced by corporate profits if interest rates rise that rate isnt as attractive if they fall their fixed divi dend rate will become attrac tive more investors will buy them at a higher price many investors buy pre ferred shares of large compa nies because they feel they can count on the dividends the dividends qualify for the divi dend tax credit so they get a good rate of return along with some tax relief but thats for the long run many others buy them for the short term when they believe interest rates are going to fall as rates fall the price of pre ferred shares is often marked up so that the yield on the pre- ferreds matches yields paid elsewhere that creates a cap ital gain which is taxed at a lower rate than other forms of income if you believe the economy is going to improve thats one of the reasons why interest rates have risen isnt it theres a believe that the economy will do so well in the next couple of years that it might create some inflation so if you believe the economy is going to improve you also have to believe that profits are going to improve one way to participate on both fronts is to buy convertible preferred shares they are convertible into the companys common shares which should rise in value if profits improve convertible preferreds can even rise in value when interest rates are rising because the profit pic ture offsets the damage done by higher rates but if rates fall at the same time profits rise convertible preferreds can enjoy a double windfall some mutual fund compa nies have funds that buy large blocks of preferred shares along with mortgage backed securities bonds and other high yielding investments so they can offer a high income to investors who want to live off the income rather than the capital gains possibilities many of these mutual funds offer a better rate of return than term deposits and gics with lower tax burdens because of the dividend tax credit and a chance for rising yields in the future when you buy preferreds though make sure you check their past performance as to their dividend payments and ask what happens if they miss a dividend markham fairgrounds mccowan rd just north of major mackenzie sat june 25 flag drops at 7 pm be there qn self storing fabric ss8 retractable awnings protect yourself from harmful ultraviolet rays 5 year warranty custom made sizes self storing self supporting retractable fabric awnings markilux fabric draylon poly acrylic fibre block out ultra violet rays and 77 of the suns direct heat 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