Requirements for this to apply: 

 - Must be in the 50.30 % tax bracket or greater (annual income of $58,500 or greater in  N.S.) 

 - Must be required by legal divorce decree to pay annual alimony to an ex-spouse. The more alimony payable the better the plan works. 

 Actual Case: - January 16, 1991 - January 16, 1996 

 - Ex-wife, (a Halifax area lawyer, earning $115,000 per annum) was the family bread winner, and upon divorce SHE is ordered by the courts to pay her ex-husband alimony of $1000 per month. 

Solution: 
 - Ex-wife borrows $132,000 from the bank at 10% interest, twenty year amortization,  monthly payment of $1142.  

 - Puts $12,000 into a money market mutual fund and uses this to pay her alimony for the  next year. 

 - Invest $120,000 outside the RRSP in 4 foreign content mutual funds. 
     
    - $30,000 - BPI American Small Companies 
    - $30,000 - Fidelity Growth America 
    - $30,000 - Templeton International Stock 
    - $30,000 - Trimark Fund 

 - End of year one the ex-wife will get a 50.3% tax refund for the tax deductible interest on  the money borrowed to invest, (120,000 x 10% interest=12,000 x 50.3% tax  refund=$6036). 

 - She'll also get a 50.3% tax refund for the tax deductible alimony paid, ($12,000 x  50.3%=$6036). Total annual tax refund of $12,072. 

 - The ex-wife then takes the $12,072 tax refund and replenishes the money market  fund to pay the next twelve months alimony. She continues to do this for five years. 

 - At the end of five years the $120,000 invested originally has grown to $293,373      - $63,396 - BPI American Small Companies 
    - $79,832 - Fidelity Growth America 
    - $69,730 - Templeton International Stock 
    - $80,415 - Trimark Fund 

 (average annual compound return of 19.98%). The ex-wife makes a one time  settlement offer to her ex-husband of $120,000, and the ex-husband signs a satisfaction  piece to waive any future claims to any alimony. 

 - The ex-wife takes the remaining $173,373 and pays off the loan, (which know has a  principal balance owing of $107,505) and walks away with the excess, less the capital  gains tax for 1995. Thus Revenue Canada has paid her alimony and helped her get rid of  her ex-husband. 

 

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