Learning Centre -
Tax planning for the family
Keep it in the family by tax planning together
Why give away more money in taxes than you have to? If you are not looking at your total family picture when doing your tax planning, you could be missing out. Check these strategies to split income within your family and reduce the taxes you pay.
Let the higher income earner pay the bills while the lower earners in the family invest. These earnings will then be taxed at the most favorable rate.
If you run a business, hire your spouse and children. It is perfectly legal to pay them a reasonable salary for legitimate work.
Lend money to your spouse and/or children to start or run a business, while they keep their own savings intact. You generally can't give or lend them money to earn investment income without paying tax on that income yourself. However, a gift or loan to earn business income is fine.
Spouses who are each receiving CPP benefits can choose to get a portion of each other's pension. Each spouse pays income tax on the amount he or she receives, so this can be an effective income- splitting technique.
Invest child tax benefits in your child's name. The income will be taxed in his or her name, typically at a much lower rate than yours.
Consolidate charitable donations on the higher earner's tax return. Donations above $200 qualify for a higher tax credit and may save high-income surtaxes.
If you contribute to an in-trust account for a minor beneficiary, the resulting taxes on any capital gains may be paid by the child.
Save for higher education through a Registered Education Savings Plan. Although contributions are not tax-deductible, there is no tax payable on the income earned within the plan. When the money is withdrawn for full-time education, it is taxed in the beneficiary's or student's hands who is usually in a lower tax bracket than the original contributor.
Spousal RRSPs make sense when there is a significant difference in financial standing between you and your spouse. For example, you have a sizable RRSP but your spouse has just started contributing, or you have a company pension plan and your spouse does not. If so, the higher income earner can contribute to the spouse's RRSP (up to the contributor's own RRSP limit). The contributor gets the tax deduction, but future withdrawals will be taxed at the planholder's lower tax rate.
Canadian income attribution rules that can block attempts to shift income to another person do not apply if the transferer is a non-resident. You can therefore have an overseas relative contribute to your child's savings but remember to check the tax consequences in the transferer's country of residence
Reviewing your family's tax planning can mean more money in your pocket now and give you a better chance to realize your goals in the future. For more information on sharing income within your family, please refer to the information from the Trimark Taxation Bulletin on Income-Splitting Opportunities.
Notice:- Fiscal Agents Financial Services Group are not engaged in rendering tax, accounting or legal professional services or advice. The comments on this page are not intended, nor should they be relied upon, to replace specific professional advice. Before acting on material contained herein, readers should seek advice that is appropriate to their personal circumstances from a professional advisor.