Family Tax Cut credit adds to income splitting options
Canadians can use to save tax
TORONTO, March 31, 2015 /CNW/ - While the new Family Tax
Cut credit has attracted a lot of attention since its introduction
last year, there are other potentially better income splitting
strategies that have been around a lot longer and provide much more
significant tax savings for your family, finds a new CIBC
(TSX: CM) (NYSE: CM) report by wealth advisory expert Jamie Golombek.
"With marginal tax rates for high-income earners approaching 50
per cent in several provinces, now is a great time to revisit
income splitting strategies," says Mr. Golombek, Managing Director,
Tax and Estate Planning, CIBC Wealth Advisory Services.
In his report, The Great Divide: Income Splitting Strategies
Can Lower Your Family's Taxes, he points out that the
"attribution rules" in Canada's
Income Tax Act make it difficult for high-income earners to simply
hand income to lower-income family members for them to report on
their tax returns. "However, there are a number of strategies
available to families that can reduce your tax bill," he says.
The report describes in detail the following income splitting
strategies:
Family Tax Cut credit
The Family Tax Cut credit can be claimed for the first time for the
2014 taxation year. The credit provides a version of income
splitting that allows you to notionally transfer up to $50,000 of income to your lower-income spouse (or
partner) provided you have a child who was under 18 at the end of
the year. The maximum benefit, however, is capped at $2,000.
Pension splitting
You can split up to half of your pension income with your spouse.
Any pension income that qualifies for the $2,000 federal pension income credit qualifies to
be split.
Spousal RRSPs (RRIFs)
Spousal RRSPs can be an effective method of income splitting in
retirement for those who expect to have a higher income or have
accumulated more retirement assets than their spouse.
Higher-income earner pays all expenses
The higher-income earning spouse pays all the household expenses,
while the lower-income earner does all the non-registered
investing.
Spousal loan and loan to a family trust
Spousal loans are exceptionally attractive now since the prescribed
interest rate is currently at a historic low of 1% (which is the
lowest rate possible) until at least June
30, 2015. The spousal loan strategy can be expanded to help
fund expenses for your children if you make a prescribed rate loan
to a family trust.
Put your family members to work
If you own a business, hiring your spouse or children to work for
you can be a great way to income split. The result could be
thousands of dollars of annual tax savings.
"Income splitting can reduce the overall tax burden for the
family", says Mr. Golombek. "There are a number of strategies
available, so speak to your tax and financial advisors to determine
which ones are right for your family."
The full report is available at:
https://www.cibc.com/ca/pdf/advice-centre/income-splitting-strategies-2015-en.pdf.
About CIBC
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SOURCE Canadian Imperial Bank of Commerce