Lend money to your spouse (7) A higher-income spouse or partner can lend money to a lower-earning spouse or partner in order to invest. There must be a promissory note that includes the federal prescribed interest rate. Your spouse would report the investment income. The annual interest is claimed as a tax deduction. The higher earning spouse would pay tax on the interest income that you receive in that calendar year.
Pension-Income splitting (6) What is split pension income? If you received “eligible” pension income last year. It might be worthwhile to split as much as half of your pension with your spouse or common law partner in order to lower your taxes. Canada Pension is paid out to Canadian citizens that are at least 65 years old. “eligible” money includes: 1. Income from a Registered Pension Plan (RPP); 2. Annuities from a Registered Retirement Savings Plan (RRSP); 3. Payments from a Registered Retirement Income Fund (RRIF), and 4. The taxable portion of annuities from a superannuation or pension fund or plan. For individuals under the age of 65, qualifying income comprises money from pension plans and superannuation plans, including foreign pensions.
Here is Tip#5 from our series of seven tax tips to think about when filing your tax return this year.
Tax Tip #5
Here is another way of paying less tax. If you haven’t heard of the income splitting tax plan, here’s how it works. You can transfer income to a lower income spouse or a common law partner or your child. Your taxable earnings will decline. The catch is that the lower income individual must actually perform job-related duties. Also, you must keep employment records. The rule is, you must pay a wage or salary that commensurate with what you would pay another person to do the same job. AWhen you use this process, you can benefit on another level. The hired spouse (child or common law partner) will beable to contribute to the Canada Pension Plan (CPP) and also may contribute to an RRSP.
Registered Disability Savings Plan (RDSP) “new”
Tax tip #4
If you, a family member or a friend is eligible for the disability tax
credit, you can open a Registered Disability Savings Plan. This is a
new tax benefit plan. The 2013 deadline for opening one has
been extended to March 2, 2013. The 2013 RDSP contribution year begins
March 3. These contributions are not deductible. The benefit is that
the money will grow tax-free. When earnings are withdrawn, they will be
taxable by the beneficiary of the disability savings plan. In all
likelihood, they will be taxed at a lower rate.
Income paid out
from your RDSPs does not affect federal income-tested benefits, such as
OAS payments, child tax benefit and the goods and services tax credit
(GST). Ottawa provides matching grants up to $3,500 a year, plus a
$1,000 bond each year for families with incomes under $37,885. There is
a ceiling for the RDSP contributions. It is called a lifetime
contribution with a limit of $200,000
Here is the 3rd tip in the series of Seven Tax Tips applying to your 2013-14 returns. I hope this is helpful information in deciding how to allocate your funds.
TIP #3 A parent or grandparent can make deposits to a Registered Education Savings Plan; RESP. This type of contribution isn’t deductible, but the investment income grows tax-free. At some point, when the money is withdrawn, it is then taxed in the name of the student. The student may pay little or no tax, depending on their own tax bracket. Another feature is the if you contribute up to $5,000 in one year, the federal government will pay a 20 per cent matching grant into your RESP. You may also be able to add more to the plan if you have unused contribution room from previous years. This can be explained in more detail by John McCormack CPA, CGA CFP, your accountant.
This is the second one of the series on 7 Tax Tips
Make the Most of Registered Savings Plans (RRSP)
Tip #2 What is a spousal RRSP? The primary benefit of a spousal RRSP is that funds withdrawn can generally be taxed in the hands of the lower-income spouse or partner. The higher-income contributor typically gets a larger tax deduction because of the higher tax bracket. Here’s how it works. If both you and your spouse withdraw $30,000 each in one year, then each person is in a lower tax bracket than if only one of you would withdraw $60,000. It is important to withdraw the money from the separate plans in order for both spouses to benefit from lower tax rates. An added incentive is that if you each have an RRSP, you will both benefit from the nonrefundable pension tax credit and you may be able to reduce or eliminate the Old Age Security (OAS) clawback.
January is the best time to get started! Reducing your taxes is one of the ways to help you save money. Below, is a 2013 checklist on ways to lower your tax bill and give your financial planning a booster shot.
This is the first one in the series of “seven” tax tips for 2013. We will let you know all about them. Each week day, I will publish another segment in the series of the Tax -Group of SEVEN!
RRSP Contribution Cap
TIP #1 for 2013, the contribution cap is $21,000. You still have until March 2, 2014 to max out your 2013 contribution, with a ceiling of $20,000. The first tip is that the sooner you contribute, the sooner the money starts to grow tax-free until you start to withdraw. Look at your contribution as a monthly household payment when you start saving. In return for your contributions you get a tax credit.
Take note, that if you have not made maximum contributions every year, you can exceed the limits by using that unused room. Ask your accountant John McCormack, CPA, CGA, CFP to fully explain this aspect of tax saving in more detail on your first visit.www johnmccormack.cato be continued…..