Pay Less Tax - Income Splitting Tools for Families, Retirees and Business Owners

Dymond Scruton Advisory Group - Oct 07, 2016
As a way to reduce a families overall income-tax bill, taxable income can transferred from a higher-income family member, to a lower-income family member.  Although the federal government has eliminated the Family Tax Cut, there are still some opport

As a way to reduce a families overall income-tax bill, taxable income can transferred from a higher-income family member, to a lower-income family member.  Although the federal government has eliminated the Family Tax Cut, there are still some opportunities for "income splitting" available to Canadians.

 

Here is a list of tools that can be used, to split income and pay less tax:

 

Spouses:

 

Prescribed Rate Loans - Higher-income spouse loans money to lower-income spouse, to be invested.  Works well now, given the low prescribed rate of 1%.

 

Families:

 

Interest-free Loans for Business Income - Money can be loaned, interest-free, to a spouse, child or family member to run a business and the income from that business is taxable to that person.

Capital Gains for Minor Children - Capital gains realized by children is not attributed back to the parent.

Registered Education Savings Plans (RESPs) - see previous post here for details.

Registered Disability Savings Plans (RDSPs)

Spousal RRSPs - Higher-income earner contributes some or all of their contribution room to their spouses name.  This is useful for people who may retire before age 65 and start withdrawing, as after 65 pension income can be split, for tax purposes.

 

Retirees:

 

Pension Income Splitting - Income from these plans can be split, once the pensioner reaches age 65.

CPP Sharing - CPP income can be split, for tax purposes.

 

Business Owners:

 

Salaries Paid to Family Members - Business owners can pay their kids and spouses for work done for the business, so that this income would be taxed at a lower rate.  However, must be justified and able to be proven, as CRA likes to watch for these in audits.

Loans from Private Corps to Family Members - Money could be loaned to a child, aged 18 and over, while in university, and taxed at the child's rate.

Discretionary Shares to Children (18 and over) and Spouses - dividends can then be paid to them and taxed at a lower rate.

Family Trusts - Similar income splitting opportunities as above, but also the opportunity to multiply the capital gains exemption.

 

This info is taken from a report provided by Collins Barrow LLP, Chartered Accountants.  Here is a copy of the full report, for more detail.

 

Please contact me to arrange a consultation with our team, if you think some of these opportunities may apply to you.

 

Sincerely,

Jeff Scruton