Tax Tip Thursday

Since Valentine’s Day just went by, I thought I would talk about couples and taxes this week! How exciting and romantic, don’t you think?

Income and taxes can be shared with your spouse. But how?

Corporations

If you are an owner-run corporation, there are some opportunities if your spouse is not employed or earns less than you. Quite often the spouse is involved and contributes to the day to day activities in some way, shape, or form.

If that is the case, I recommend that you formalize the position and identify the role the spouse is performing. This will give you the opportunity to pay your spouse and perhaps pay dividends depending on the situation.

This is a great opportunity to legally split income.

*On the topic of corporations: please note that in order to give us access to your online CRA accounts, you must have a MyBusiness account and authorize us through there.

Pensions

If one or even both of you are receiving pensions in addition to CPP and OAS, there is potentially an opportunity to share some of it with your spouse.

When we are preparing your taxes, there is a schedule that allows us to decide if you one of you want to share some portion of your pension income. It is a complicated calculation taking into account both the pension income available for splitting but also the taxes that are associated with that income. The really important part of this to the client is that one person may actually end up paying tax after the pension split, when they might not have owed any tax prior to the splitting. We look at the couple as a whole and produce the best result for you as a couple. The end result is that you will pay less tax as a couple.

The best part is – then you get to negotiate with your spouse about how the payments/refunds are going to be dealt with to/from the bank account!

Small Business/Sole Proprietor/Partnership

These are really all one in the same and actually tend to be a little more complicated. There are also opportunities here to share income and therefore the taxes. The most important part of this legitimacy.

We have had clients flip flop back and forth about how much of the net income is going to their spouse. If there is a supportable argument based on legitimacy, you can proceed, but if it is just moving income around to suit income levels of any given year, I would not try it.

When I say supportable, I mean that you have the ability to show your level of participation. Email, phone calls, time in the office, etc…. are all excellent ways to support your participation.

Investment/Rental Properties

This is one people seem to treat the same as the Sole props/partnerships, but it can not. We have seen a few problems with this over the years.

The key to this is planning in advance of purchasing the property. There are various ways to address this, some more complicated than others, but rental properties and the associated income are generally based on ownership (who is on title).

I have seen several situations where one or the other spouse (or both) own a property, but because one spouse’s income level is relative to the other, they want to split the income or not split the income. I have even seen people change how much they split their income year to year.

It is based on ownership and if you plan it out correctly at the beginning, you can make it work in your favour so that you pay the least amount of tax as a couple.

How Do I Set This Up?

The easiest way to get this set up properly and to save the most money you possibly can is to have a professional do it for you. That’s where we come in! We specialize in keeping more of YOUR money in YOUR pocket. Book your appointment today to get started.

Disclaimer:

This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal or tax advice nor can it or should it be relied upon. All tax situations are specific to each individual. If you have specific tax questions you should book an appointment for a 1 on 1 consultation.