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stux weekender may 20 1995 p 13 mutual fund limited partnerships an option for stretching an rrsp one of the reasons taxpayers often cite for not wanting to con tribute to a registered retirement savings plan is that you only have to pay tax on the funds when you remove them and based on whats been hap pening of late you will probably pay a higher tax rate at that time the rationale behind using these plans of course is that you get a tax deduction now accumulate much more money because of tax- free compounding inside the plan and hope that your tax rate will be lower when you retire and start to remove the proceeds however with big spending gov ernments constantly raising our tax rates and clawing back our social benefits many are worried that they will only face a bigger tax bill come retirement time the financial community though has developed a number of tax planning strategies that can help you remove much or even all of the money from your rrsp with little or no tax dont let there be any confusion you get a tax deduction when you contribute to an rrsp and as a result you must include any money you remove from your rrsp as income on your tax return however theres nothing that says you cant manufacture an equal and offsetting tax deduction even if you use the money you are removing from your rrsp one of the hot ideas involves using the popular mutual fund limited partnerships while the name may conjure up all kinds of negative thoughts of undue risk especially for pension ers these lps dont really involve a high degree of risk many canadians objected to paying commissions when they purchased mutual funds to solve this problem the industry invent ed mutual fund limited partner ships they sell units in these popular plans to investors looking for tax relief think of it this way when you put your money into one of these plans its like putting it into a large barrel when the fund com pany needs to compensate a stock broker or mutual fund salesperson for mutual fund sales they use the money inside the barrel and as a result all your money will be spent you lost it all you get a 100 per cent tax write off but why buy anything just to get a tax write off its easy to document that your money helped the fund company sell mutual funds as a result they let you share in the manage ment fees generated by those funds and if any investors pay exit fees because they sold the funds early you share in that as well some of these lps allow you to webb school holds reunion the webb school reunion is set for sunday may 28 at goodwood community centre wellknown auctioneer norm faulkner will mc the program and memorabilia and booklet will be available share for a lifetime some set a defined length of time but all give you a 100 per cent tax writeoff plus years of regular income effectively what you are doing is pushing your tax bill forward that gives you and your financial planner time to put in place a better financial strategy when mutual fund lps were originally introduced they allowed a full tax deduc tion in only one year they have since been watered down to a degree your money brian costello now the writeoff is spread over a threeyear period however you also pay for them over a threeyear peri od for example if you con tracted to buy 18000 worth of these investments you would pay for 6000 a year and write off the same amount each year this is a great change as it now allows us to plan three years in advance seniors are snapping up the few mutual fund lps that come along for three reasons in the above example you can now use 6000 a year to elim inate the loss of the 6000 pension rollover to your spouses rrsp it was can celled at the end of 1994 the second reason is because this tax deduction is declared before calculating your net income the line that is used to determine whether you lose your social benefits because of the clawback the third is to manufacture tax deductions that will allow you to remove an equivalent amount of money from your rrsp without have to pay tax the tax deduction offsets the taxable income there are some other very attractive strategies that can work wonders as well ill address them in coming weeks