We never thought we would be writing about falling income tax rates, but you heard it here first. No not really, by now it's common knowledge that the federal and provincial governments have decided it would be politically correct to offer Canadians a tax reduction on income tax rates. This comes after a decade of seemingly endless tax increases.

Of course one critical by-product of decreasing tax rates is that your tax refund on RRSP contributions will decline. We encourage everyone to top up your RRSP for the tax year 2000. You have until March 1, 2001 to take advantage of the higher tax refund based on the old, higher income tax rates. Contributions made for the year 2001 and beyond will attract a lower tax refund.

Many of you have unused RRSP room that has been accumulating since 1990. You can find your RRSP limit by referring to your 1999 Notice of Assessment. You may want to consider taking out a loan and top up as much as possible. This will insure that you take advantage of the higher tax rebate offered prior to the year 2001.

Another way to reduce your income tax burden is by contributing to a Labour Sponsored Investment Fund (LSIF). A LSIF is structured similar to a mutual fund. The difference is that a LSIF fund invests in small Canadian businesses, usually ones that have not been listed on any stock exchange. The Federal and Provincial governments offer additional tax credits to investors of a LSIF. The credit is 15% from the province of Ontario and 15% from the federal government. The 30% tax credit is received on any investment amount up to a maximum of $5,000.

Recently two LSIFs were approved in Ontario for an additional credit of 5% based on the amount of research conducted by the companies in the portfolio. This extra amount brings the total potential tax credit to 35%. A $5,000 LSIF investment into a RRSP can cost as little as $1,250 after considering the tax refund and credits.

Time is running out for you to take advantage of the higher tax rates on your year 2000 tax return. Use the RRSP rules and other strategies to roll back the amount of tax you pay before the benefit declines.

This is a monthly article on financial planning. Call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., of Fundex Investments with your topics of interest at 798-2421 or E-mail at rick@invested-interest.ca.