There are a number of ways to lower your overall family taxes payable. One of the most common methods is to take advantage of the marginal tax rates by splitting income with your spouse (and other family members). The gist of this method is that income is shifted, legally and without triggering anti-avoidance rules (of which there are many), from the high-rate taxpayer to a lower-rate taxpayer.
For example, if you are a resident of Ontario for 2016 and earned $100,000 in taxable income, you would end up paying about $25,000.00 in income tax (an average tax rate of 25%). However, if you managed to shift $25,000.00 to your spouse, you would pay about $15,000 in income tax and your spouse would pay about $2,700.00. This combined total of $17,700 saves your family unit $7,300 in taxes. That is a lot of money that you could then put towards other things, like paying down your mortgage, taking a vacation, or saving for your child’s education.
Any tax plan will depend on your personal circumstances and future goals. There are no one-size fit all tax plans. That said, it helps to be aware of ways in which you can potentially split income legally. Some permissible income splitting arrangements include:
- Making an income splitting loan to allow your spouse to earn investment income;
- Making contributions to your spouse’s RRSP;
- Implementing an estate freeze;
- Splitting pension income or sharing CPP payments;
- Selling income earning property at fair market value;
- Paying family members a reasonable salary;
- Making contributions to an RESP; or
- Splitting the family business into two independent but related ventures.
Talk to FarisCPA today see what options are available for you. Don’t pay more taxes than you have to.