Now that the 2012 tax season is finished and you have submitted your income tax return, are you happy the result? While we want to pay our fair share in taxes, no one wants to overpay the Tax Man. In some circumstances, it is possible to split your income and reduce your tax payable. Since taxes are on your mind, now the perfect time to look at some options you may want to consider to ease your tax burden in 2013.
Strategies to Help Cut Your Tax Bill for Next Year
- Share Your Canada Pension Plan Benefit
You and your spouse can apply to share the Canada Pension Plan Benefit. If both of you are currently receiving CPP benefits, the payments can be adjusted so that both of you are receiving the same amount. If only one of you is receiving a CPP benefit, it can be divided so that you and your spouse each receive half.
This type of arrangement can be put in place if you and your spouse or partner are over the age of 60. You must apply for the assigning of benefits, but you only need to do so once. The pension sharing cannot be backdated.
The arrangement will continue as long as you are in a relationship with your spouse or partner. (If you decide that you no longer wish to share your pension at any point in the future, you can write a letter to Service Canada and ask that the arrangement be stopped.) You can find out more information at the Service Canada website.
- Split Your Other Pension Income with Your Spouse or Partner
Are you or your spouse receiving life annuity payments from a company pension plan? Starting in 2006, these payments could be split with a spouse or partner. There is no age restriction on the person receiving the annuity payments.
If you are over the age of 65, you have more options for splitting pension income. RRIF and annuity payments from an RRSP or deferred profit-sharing plan can also be split.
To take advantage of this option, you and your spouse or partner will need to file a Joint Election to Split Pension Income (Form T1032). This form must be filed annually. Before sending it in, you should sit down with your financial advisor to determine whether it is to your advantage to split your pension income.
If you decide to split the pension income, you are not limited to a straight 50/50 split. Another arrangement may be to your advantage (60/40, 30/70), especially if you are looking at clawbacks for the Old Age Security benefit. Your financial advisor can help with these calculations as well.
As an experienced financial advisor (and a fellow taxpayer), I help my clients implement strategies to maximize their income and keep their tax rate as low as possible. If you are experiencing sticker shock after completing your income tax return, please contact me for a confidential consultation.