Bryan is an employee of mine who’s getting married this weekend. Coincidentally, my seventeenth anniversary was last weekend. Bryan was asking me the secret of our successful marriage. I decided to share with him the words of Henny Youngman that I heard at the time I was getting married: “We take time to go to a restaurant two times a week. A little candlelight, dinner, soft music and dancing. She goes Tuesdays, I go Fridays.”
I then told Bryan about the many tax benefits of being married and having a family. Specifically, it’s possible to share the tax bill that he might otherwise pay himself. This is the concept of income splitting – which I’ve been speaking about the last two weeks – and it can save you tax dollars.
Here’s a final instalment on how to split income effectively.
1. Pay an adult child for certain tasks. Consider paying your adult child (age 18 or older in the year) to look after your kids who are 16 or younger. These payments may qualify as child-care expenses for you to deduct – subject to child-care expense rules. Similarly, pay your adult child to help in a move and deduct that cost, subject to moving expense rules. In each case, your adult child will pay the tax on that income.
2. Invest the CCTB in your child’s name. If you receive Canada Child Tax Benefits in respect of a child, you can invest those dollars in the name of the child and there will be no attribution back to you of the income earned on those investments.
3. Transfer pension income to your spouse. You can transfer up to 1/2 of your eligible pension income to your spouse. You’ll claim a deduction for the amount chosen and your spouse will report that income. Eligible pension income is that which qualifies for the pension credit.
4. Split the tax on your CPP benefits. You’re entitled to take up to one half of your Canada Pension Plan benefits and report the amount on your spouse’s tax return, provided you’re both over age 60.
The arrangement is reciprocal so that the same proportion of your spouse’s CPP benefits will have to be reported on your tax return, but you could come out ahead as a couple. You’ll need to set up this arrangement by contacting Service Canada here.
Read more from Financial Post