Summary
Along with the introduction of taxes on income trusts were some fundamental changes to the strategy of income splitting through financial planning. Equalizing retirement income between spouses decreases the family tax bill and helps prevent clawbacks of OAS and other income-tested credits. Planning involves basics like spousal RRSPs and having the lower-income spouse save his or her income, and range to sophisticated techniques like inter-spousal loans at the CRA's prescribed rate.
As an example, Dale, 66, has a $60,000 pension, plus OAS and CPP, for total income of $75,842. Kim has OAS and 30 per cent of the CPP maximum, for a total of $8,950 taxable. Kim pays no tax, while Dale pays $22,440, including OAS repayment of $2,255.If you own income trusts or mutual funds that invest in trusts, you might notice you have a lower account value than you did on Tuesday. That's part of the bad news. The reason is that Mr. [Flaherty] decided to stop the migration of companies from a corporation structure to the tax-free income trust structure by announcing that income trusts will be taxable like corporations in 2011. In return, the distributions will then attract the dividend tax credit, reducing the tax that taxable investors pay now on their distributions.See the full content of this document
Extract
Letting Spouses Split Income Will Help Ease Pain
Dollars and Sense / David Christianson
THE Minister of Finance pulled the rug out from under many of the basics of financial planning with his news conference on Tuesday night.Along with the introduction of taxes on income trusts ...See the full content of this document
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