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Income Splitting 101in Tax Advice Information and Updates
Income splitting is a key factor in tax planning. Income splitting allows both spouses to stay in a lower tax bracket by shifting some income from the spouse in the higher tax bracket to the other spouse in the lower tax bracket. The goal in the end is to lower the amount of total family tax paid/payable.
It is possible to split many types of income, including income from the company, investment income, pension income (up to 50%), R.R.I.F. income (considered Pension Income), CPP income, RRSP income (need to plan this before you contribute), and the list goes on. The main type of income that cannot be split is employment income.
Generally, it takes early tax planning to be able to split the income as it cannot usually be done after the year is over.
In the case of an RRSP or investment, you must purchase the RRSP or investment by the correct spouse right from the start. For CPP splitting, it must be assigned and for pension income splitting, it is simply applied on the tax return. For business income splitting, your business structure must be set up properly from the beginning. If you have a family trust, you have many more income splitting opportunities.
As we always say, tax planning should be done before any major asset purchases, business start-ups or investing. Tax planning is a MUST if you want to maximize your tax savings! Need help in setting up a tax plan for you, your family and business? Call KD today!