Tax Tip #5

Here is another way of paying less tax.  If you haven’t heard of  the income splitting tax plan, here’s how it works.  You can transfer income to a lower income spouse or a common law partner or your child. Your taxable earnings will decline. The catch is that the lower income individual must actually perform job-related duties. Also, you must keep employment records. The rule is, you must pay a wage or salary that commensurate with what you would pay another person to do the same job. AWhen you use this process, you can benefit on another level. The  hired spouse (child or common law partner) will beable to  contribute to the Canada Pension Plan (CPP) and also may contribute to an RRSP.

Tax tip #4
If you, a family member or a friend is eligible for the disability tax
credit, you can open a Registered Disability Savings Plan. This is a
new tax benefit plan. The 2013 deadline for opening one has
been extended to March 2, 2013. The 2013 RDSP contribution year begins
March 3. These contributions are not deductible. The benefit is that
the money will grow tax-free. When earnings are withdrawn, they will be
taxable by the beneficiary of the disability savings plan. In all
likelihood, they will be taxed at a lower rate.

Income paid out
from your RDSPs does not affect federal income-tested benefits, such as
OAS payments,  child tax benefit and the goods and services tax credit
(GST). Ottawa provides matching grants up to $3,500 a year, plus a
$1,000 bond each year for families with incomes under $37,885. There is
a ceiling for the RDSP contributions. It is called a lifetime
contribution with a limit of $200,000

Tip #2 What is a spousal RRSP? The primary benefit of a spousal RRSP is that funds withdrawn can generally be taxed in the hands of the lower-income spouse or partner. The higher-income contributor typically gets a larger tax deduction because of the higher tax bracket. Here’s how it works. If both you and your spouse withdraw $30,000 each in one year, then each person is in a lower tax bracket than if only one of you would withdraw $60,000. It is important to withdraw the money from the separate plans in order for both spouses to benefit from lower tax rates. An added incentive is that if you each have an RRSP, you will both benefit from the nonrefundable pension tax credit and you may be able to reduce or eliminate the Old Age Security (OAS) clawback.

This is the first one in the  series  of  “seven” tax tips for 2013.   We will let you know all about them.  Each week day, I  will publish another segment in the series  of the Tax -Group of SEVEN!

RRSP Contribution Cap

TIP #1  for 2013, the contribution cap is $21,000. You still have until March 2, 2014 to max out your 2013 contribution, with a ceiling of $20,000. The first tip is that the sooner you contribute, the sooner the money starts to grow  tax-free until you start to withdraw.  Look at your contribution as a monthly household payment when you start saving. In return for your contributions you get a tax credit.

Take note, that if you have not made maximum contributions every year, you can exceed the limits by using that unused room. Ask your accountant John McCormack,  CPA, CGA, CFP to  fully explain this aspect of tax saving  in more detail on your first visit.www johnmccormack.cato be continued…..