Tax planning for individuals and families in an ongoing process to reduce the overall taxes owing by the family. It is usually the cumulative result of different tax planning strategies. The following tax planning techniques should be considered in consultation with our experienced Canadian tax lawyers:
- Income Splitting
- RRSP Contributions
- TFSA Contributions
- RESP Contributions
- Tax Shelter Investments
- RRSP Meltdown
- Private Pension Plan
FAQ’s Individual & Family Income Tax Planning:
What does income splitting mean?
The higher your income, the higher your tax bracket and the more tax you’ll need to pay. Income splitting is a practice used to reduce the overall tax bracket of a household. The partner earning the most money and in the higher tax bracket transfers a portion of his/her income to the lower-earning spouse taxed at a lower rate.
What types of payments can I put in my RRSP?
You can make continued cash contributions to your RRSP or build an investment portfolio with the money that you contribute. Investment options include Guaranteed Investment Certificates (GICs), mutual funds, real estate investment trusts, and exchange-traded funds. You can put funds to your RRSP up to the allowable limit determined by the unused contributions from the previous year and your income earned in the current year.
What kind of distributions qualify for income splitting with my spouse or common-law partner?
One of the popular options for income-splitting is by employing your spouse in your business and paying him/her a legitimate salary. You should do this legally with the employee receiving the necessary T4 slip. The employee should also be doing the required amount of work in line with their receiving salary. Alternatively, you can issue your spouse with shares in the business and pay dividends to him/her.