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RRSPs and RRifs act as a form of tax shelter - in other words,
you only pay tax on amounts withdrawn from the plan, usually
at a lower rate after you retire.
Of course, there are other ways you can reduce income tax, such
as income splitting and contributing to a spousal RRSP. A
tax-effective strategy should be adopted during your prime
earning years, as this will allow you to have more money to save
for retirement, and can be followed through to your actual
retirement years.
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Other Ways to Reduce Income Tax:
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Income Splitting |
Income splitting involves one family member in a higher tax
bracket shifting income to another family member in a lower
tax bracket. The potential benefit is that the total tax paid by
the couple will be reduced. There are several opportunities
available to reduce your tax burden without breaking Revenue
Canada's rules.
Here are some of the more common income splitting tips:
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Increase the lower income spouse's investment base.
Make sure all your household's daily living expenses
(rent, groceries, etc.) are paid by the higher income
spouse. This will ensure the lower income spouse has
more money to invest. Any earnings made on these
investments are then taxed at the lower tax rate.
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Pay a salary or consulting fee to your spouse and
children. if you own a business, for example, you can
pay your children and/or spouse to do bookkeeping,
filing, or for acting as a director of the company. You will
need to weigh this potential income splitting tactic
against the payment of payroll tax and other expenses
incurred.
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Transfer assets to minor children. This can be particularly
effective if you expect an asset to increase substantially
in value. A potential benefit is that capital gains on the
eventual sale of the asset will be taxed in the hands of
your child. However, any dividends or income paid from
the investment (e.g.,mutual funds) held in the name of
your child will be attributed back to you.
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| Registered Education Savings Plans (RESPs) |
RESPs are another way to save for your child's education. Parents
and other donors may now contribute up to $4,000 per year (per
beneficiary) into a RESP. In order to encourage Canadian families
to save regularly for the escalating cost of education, the
restrictions regarding RESPs have recently been relaxed.
Although, the savings must still be used for specified post-
secondary institutions.
This is a simple introduction to the world of family taxation. Visit
a qualified financial, legal and/or tax advisor to develop a tax
minimization strategy suited to your circumstances.
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| Best rates based on a minimum $5000 investment.(7/24/2008) |
| Term |
Average
Big 5 Rate |
GIC Direct's
Best Rate |
| 1 yr |
2.25% |
4.05% |
| 2 yrs |
2.60% |
4.41% |
| 3 yrs |
2.85% |
4.60% |
| 4 yrs |
2.95% |
4.70% |
| 5 yrs |
3.20% |
4.76% |
| 'Big 5' refers to average rates taken from
BMO, ScotiaBank, CIBC, Royal Bank, and TD for respective terms. |
|
| Best rates based on a minimum $5000 investment.(7/24/2008) |
| Term |
Big 5's
Best Rate |
GIC Direct's
Best Rate |
| 1 yr |
2.25% |
3.96% |
| 2 yrs |
2.60% |
4.40% |
| 3 yrs |
2.85% |
4.60% |
| 4 yrs |
2.95% |
4.70% |
| 5 yrs |
3.20% |
4.75% |
| 'Big 5' refers to average rates taken from
BMO, ScotiaBank, CIBC, Royal Bank, and TD for respective terms. |
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