While many partners in marriage both work as much because they can while raising children, there are situations where only 1 spouse may be employed and receiving income for the family. To be able to try to lower their taxes on their income, the bread winners may try giving a portion of their earnings with their partner or the kids. This is, or was, one of several methods of income splitting, formerly known as Family Tax Cut. Its no available method at least in a few areas, but right now there are additional options.
Before trying any of these methods, speak with your tax lawyer Toronto. Theyll have the ability to advise you further to be able to ensure you dont accidentally overstep and break a law.
Split Your Pension
Since , Canadian citizens have already been able to split their pension incomes on certain pensiupons making use of their partner, whether through marriage or common-law. The eligible pension income could be split up to but by no more than % among the couple. Each spouse must submit Form T throughout their tax returns after both agreeing to this pension split.
Split Income Through Loans
A taxpayer who earns whats known as a passive income on an asset (rent income or dividends, for example), this person may offer the income-earning asset to their partner or their child in order to keep the asset generating money for a member of the family that has a lower tax bracket. This must be done right or else it may continue to be counted as the original individuals income.
With the help of your Toronto tax lawyer, the asset owner can set up loans which give the earning asset to their partner or child.
Basically Income Tax Act subsection .5(2) gives the taxpayer the ability to loan their family member the funds to purchase the passive income earning asset. Of course, the original asset owner has to charge a correct interest rate on the loan, and the spouse or child must pay said interest back. The CRA sets interest rates, your Toronto tax lawyer will be well aware of this.
Employing Immediate Family
Those who are self-employed can easily hire their partner or child as a method of income splitting. However it is worth mentioning that whomever is hired should be fairly paid for their services.
The rules of attribution only applies to income-earning assets rather than any business income. This is preccan beely why you should consult with your Toronto tax lawyer, to become sure the income you are trying to split doesnt keep coming back against you later.