Are you paying the highest marginal rate of tax? The recent drop to the prescribed interest rate opens-up a lucrative opportunity for some couples and families to reduce their overall tax bill.
This strategy involves a loan at the prescribed interest rate by the high-income earning individual to a trust established for the benefit of a spouse or common-law partner, (grand)children or other family members who face lower tax rates. Subsequently, the trustee invests the loaned funds for the purpose of generating investment income. This means that interest, dividends, and capital gains earned in the trust will be taxed as if the beneficiary earned these types of income personally (at the lower tax rate).
It is particularly relevant to couples looking to maximise their after-tax investment income during retirement. It also provides a tax efficient means of gifting during one’s lifetime through the income that is earned, while retaining access to the capital loaned.
Complementary estate planning tools, such as principal guaranteed investments and leveraged investing, often further enhance the effectiveness of this strategy.
Want to know more? MacMillan Estate Planning offers a series of bespoke spousal and family trust solutions that can be used to implement a prescribed rate loan strategy. Please call us on 1-833-266-6464 or email us on inquiry@macmillanestate.com for a complimentary session on this topic.
