Budget improves income splitting opportunities
By Gordon Powers, Sympatico / MSN Finance
In the U.S., married couples are allowed to file taxes jointly or individually. The choice is theirs, depending on which way will save them the most money. Most people file together.
Canada's tax system, on the other hand, requires each of us to report and pay tax on our own — which is why couples with disparate incomes simply have to split their earnings wherever they can, moving money from the partner in the higher tax bracket to the one in the lowest bracket. And this week's budget changes just gave this strategy a nice little boost.
By increasing the amount that all of us can earn tax-free to $10,320, and also boosting the first and second tax bracket thresholds by 7.5 per cent, the Tories have widened the gap between the top and bottom earners in the family, notes Tim Cestnick, head of WaterStreet Family Wealth Counsel. And that makes shifting money around all the more attractive.
Lend your lower-income spouse money you might otherwise invest and he or she will pay little or no tax on any profits, even though you might have paid through the nose. The catch? To avoid the tax bite landing back in your lap, you have to charge the prescribed rate of interest — which is currently only 2 per cent — on the loan.
Still, as long as your spouse does better than that over the long haul, you’ll save tax as a couple.
Posted by: Penny Stocks | Jan 14, 2022 3:25:23 AM
Good post.....Valuable information for all.I will recommend my friends to read this for sure…
Posted by: Penny Stocks | Jan 15, 2022 12:31:59 AM
What a helpful post really will be coming back to this time and time again. Thanks