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?
You are entitled to transfer up to 50% of qualified pension income to a lower-income spouse, and to deduct contributions you make to your spouse’s or common-law partner’s RRSP. Both distributions provide income splitting advantages by effectively reducing tax on income. Another popular strategy is employing a spouse or common law partner and paying that partner a reasonable salary for employment activities. The spouse or partner must actually be engaged in an activity for the business, and the salary paid should reflect the importance of that work.