Many Canadian tax payers become quite frustrated with the tax system because of the concept that the more money you make, the more tax you have to pay. For those individuals that are real “go getters”, and are working many hours in order to generate a large amount of income they sometimes feel like they are only working to pay taxes.
One type of tax advantage that is available to these individuals is income splitting. This is where the CRA will allow the high income earner to share some of his taxable income with the children or spouse. By doing this it puts the individual in a lower tax bracket. Tax is still being paid on the total amount earned but at a lower rate.
Another option is for the high income earner to make contributions to the spouse’s RRSP. When these are withdrawn the proceeds of the RRSP belong to the spouse. However, if any funds are withdrawn from that RRSP within two years of the deposit they will be attributed back to the spouse who made the deposit. This option is best used when the spouse has no income or at least very little.
When you are looking at the various options for splitting or sharing income it can be extremely complex because there are attribution rules that must be followed. Every individual who has the responsibility to file taxes should really consider making use of a tax accountant. When it comes to those taxpayers who have found themselves in the higher tax brackets then using the services of these individuals could be even more beneficial.
There are other tax areas that can involve sharing your tax burden such as capital gains for minors. The attribution rules do not apply in this case but again it is a difficult tax area to comprehend. You may also be able to consider various types of loans, such as non-investment loans, business loans, fair market loans or short term loans.
It would appear as though there are a lot of potential options for income splitting in the Canada tax act, and there really is, but these are difficult to understand for the average person. This is just one of many reasons why those Toronto and area residents in high tax brackets may want to start with some beneficial tax planning under the guidance of a experienced professional Toronto accountant.
