Monday, December 28, 2009

Tax Strategy: Spousal strategies – income-splitting can still work!

Spousal Tax Strategies – income-splitting can still work !

The new Tax-Free Savings Account (TFSA) and other federal tax changes may have you wondering about the value of one of the most basic tax-saving strategies for couples: “Income-splitting through a spousal Registered Retirement Savings Plan (RRSP)”. A spousal RRSP can still be a worthwhile way to reduce your family tax bite in certain situations. Here’s how income-splitting can work for you:

It provides a means of reducing a family’s overall tax bill by shifting income from a higher earner to the lower-income earner so that family income is taxed at a lower rate. It may allow a couple to avoid a claw-back of Old Age Security (OAS) benefits by keeping each partner’s income below the prescribed threshold. Recent tax changes now allow Canadian retirees to split up to half of their eligible pension income (i.e. income that qualifies for the federal Pension Income Tax Credit) with their spouses or common-law partners. In addition, income-splitting with ‘non-spousal’ RRSPs is also permitted, but only after the contributor reaches age 65.


Here’s when a spousal RRSP can be a valuable addition to your personal financial plan:
If you and your spouse intend to retire before age 65, the higher-earning spouse can contribute to a spousal RRSP but stop making those contributions three years before retirement. After retirement, the lower-earning spouse makes withdrawals from the spousal RRSP. Because no contributions had been made to the spousal RRSP during the previous three calendar years, none of the spousal RRSP income paid to the lower earning spouse is attributed to the higher earning spouse for taxation purposes. If a lower-earning spouse exits the workforce to take a parental leave or an educational leave, he or she can receive a payment from a spousal RRSP. In a year of little or no additional income, that person will pay little or no taxes. If one of you continues to work after age 71 and generates “earned income” for RRSP purposes, that person can no longer contribute to their RRSP but can contribute to a spousal RRSP until the end of the year that the spouse attains age 71. If a person dies and has unused RRSP contribution room, no contribution can be made to the deceased’s RRSP. However, a final RRSP contribution that is made to a new or existing spousal RRSP within 60 days following the end of the year of death is deductible on the deceased’s final tax return.


Is a spousal RRSP a worthwhile income-splitting strategy for you?

Ask your professional advisor about income-splitting and other tax planning and retirement savings strategies that can benefit you and your family.

This article is for general information only, not a solicitation to buy or sell any financial products. Consult your professional financial advisor for advice regarding your specific financial circumstances.

For more information on Canada's Economic Action Plan visit: actionplan.gc.ca

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posted by laramaryann @ 11:26 AM 0 Comments

Friday, November 27, 2009

Year End Tax Tips



Tax Tips - 2009

Tax-planning should be a year round activity but even if you’ve been otherwise occupied this year, you still have time to save money on your 2009 taxes by using strategies like these.Be deadline savvy: File your tax return and make tax payments on time to avoid penalties and interest. Payments that qualify for tax credits and deductions should be made by December 31.Deduct to save: Take full advantage of all tax deductions including the most important – your Registered Retirement Savings Plan (RRSP) deduction. Be sure to fill up all your RRSP contribution room.
Give yourself all the credit: Make full use of tax credits to reduce your tax bill by:
• Pooling medical expenses on the tax return of the lower earning spouse.
• Pooling charitable donations or carrying them forward for up to five years to surpass the
$200 threshold that increases your credit.
• Using the spousal credit for the higher-earning spouse.
• Transferring the age, disability, tuition and/or education credits to a spouse or supporting
relative when not used by a dependent.
• Don’t forget the first time homebuyer, home renovations and moving expenses credits.

Split to save: Income-split by sharing pension income with a spouse, through a spousal RRSP or by paying a salary to (eligible) family members.
Be RRSP savvy: If you’re turning 71 this year, you must wind up your RRSP and need to decide whether to take the cash (poor choice), or transfer the funds to investments held within a Registered Retirement Income Fund (RRIF) or annuity (much better choices). If you have earned income, you can continue making contributions to a spousal plan until your spouse reaches age 71.
Save tax-free: Make up to a $5,000 contribution to a Tax-Free Savings Account (TFSA). The contribution isn’t tax deductible but money and interest inside your TFSA is tax-free and so are withdrawals that you can make at any time for any purpose. Amounts withdrawn are added to your TFSA contribution room for the following year.
Make down investments pay off: Plan to sell money-losing investments by the December 31 settlement date, which creates capital losses than can offset capital gains.Buy now to save: If you’re self-employed and claiming the capital cost allowance (CCA) on depreciable assets, buy them before year end to speed up tax write-offs.Move to save: If you’re moving to a province with a lower tax rate, do it before December 31 and you’ll pay the lower rate for the full year. If you’re moving to a province with a higher tax rate, try to delay until 2010.

And here’s the best tax-saving tip of all: Talk to your advisor before year-end to be certain you make the most of the other tax-reduction strategies


This column presents general information only and is not a solicitation to buy or sell any investments. Contact a financial advisor for specific advice about your circumstances. Together with your financial advisor, you can explore strategies that is best suited to your financial situation.

Informational video from Canada Revenue Agency

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posted by laramaryann @ 7:11 PM 0 Comments