My investing premise is straightforward: “Splitting family income is very beneficial. Take full advantage of all provisions that apply.”
Think of income splitting in the same breath as your retirement planning. In my view, the two camps ought to fit like a glove to deliver the best value.
Families are keenly interested in paying the least income tax. There are a few low-cost activities left on the platter.
It’s never too early to get familiar with the menu. Let’s blend income splitting with your retirement strategies.
Ideally, a family pays less income tax where two spouses achieve similar income levels. Equalizing incomes allows each spouse use of the graduated tax scales from low to high.
Another beneficial goal is to equalize asset levels, as much as possible. Retirees who reduce the “clawback” retain more of the OAS pension and, perhaps, the age credit.
Utilize these income splitting tips before and after retirement:
- The higher income spouse pays all the family expenses.
- The lower income spouse saves his/her money and invests it.
- The higher income spouse loans cash at the prescribed rate to the lower income spouse.
- Split CPP/QPP pensions equally if both spouses are age 60, or over.
- Spousal RRSP deposits made by the higher income spouse help equalize family assets.
- Business owners can review the pay mix of family members, say dividends versus salary.
- Split up to 50% of eligible pension income between spouses.
- Utilize the $2,000 pension income tax credit, perhaps by both spouses.
- Arrange the finances so that capital gains are reported by both spouses.
- Fund RESP and/or RDSP contributions for a child/grandchild.
- Loan or gift cash to an adult child for a home purchase, TFSA or RRSP.
- Spouses entitled to the spousal tax credit may report the other spouse’s dividends.
Focus on what is best for the family in the long run. Then review the options that make the most sense.
Every family can find value in this assortment of income splitting techniques. It will take some planning to blend the process with the retirement goals.