Source: https://www.fbc.ca/blog/3-pillars-tax-efficient-investing-part-2-income-splitting
Timestamp: 2018-09-22 17:38:54
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The 3 Pillars of Tax-Efficient Investing: Part 2 - Income Splitting | FBC, Canada's Farm & Small Business Tax Specialist
The 3 Pillars of Tax-Efficient Investing: Part 2 - Income Splitting
In the second of a three-part series exploring the 3 pillars of tax-efficient investing, we look at the important role of income splitting in your overall tax plan. Previously, in part 1, we looked at income deferral.
The basic principle behind income splitting is to reduce the overall family tax bill by shifting invested money and the income it generates away from the highest income family member to a lower income family member.
There are potential tax savings with income splitting due to Canada’s "progressive" tax system under which we pay a higher rate of tax as our taxable income increases.
You can use the lower income spouse's salary and other earnings for investment purposes, resulting in the family's total investment income being taxed at the lowest possible rate.
You also could consider making an interest-free loan to your spouse or children for investment purposes.
Under the attribution rules, income earned on investments by your spouse or child under 18 will be taxed in your hands; however, that income becomes their property and it can be reinvested without further attribution to you. Note: the attrition rules are different for adult children and children under 18.
Read Part 3 - Income Conversion.
Please visit this space again for Part 2 - Income Splitting. - See more at: http://www.fbc.ca/blog/3-pillars-tax-efficient-investing-part-1-income-deferral#sthash.fquTrSIQ.dpuf