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Income Splitting

With the government recently reducing the benefits of income splitting through family trusts and corporations, the Canadian taxpayer continues to faced with challenges in minimizing their income tax payable. There are still some fundamental income splitting opportunities without having to take any unnecessary risks.

The Spousal RRSP is one such method. In a typical example, the spouse with the higher tax rate contributes to a spousal RRSP and receives a refund calculated at this higher tax rate. The lower income spouse will later roll the RRSP into a RRIF and the withdrawals will be taxed at that lower rate. In many provinces, the differences between the highest and lowest tax rates is approximately 20%. This translates to $2,000. of tax savings for every $10,000. withdrawn.

There is a further advantage to spousal RRSPs. While there are penalty provisions in the tax rules that require amounts contributed to a spousal RRSP to not be withdrawn for 2 calendar years, this holding period does not apply to the minimum amount withdrawn from a RRIF.

There’s more income splitting opportunities, contact us.