TAX SAVING STRATEGIES

The Canadian tax system uses progressive tax rates whereby the marginal rate of tax increases as taxable income increases. Therefore by "splitting" taxable income among family members is an effective way to reduce the overall family tax burden. However, the Income Tax Act contains a number of income splitting restrictions and professional advice should always be obtained before implementing any income splitting tax strategy.

Significant tax savings can be realized when the higher income spouse can loan or transfer income producing assets to the lower income spouse. However, extreme care should be taken to avoid double taxation from being offside to the attribution rules of the Income Tax Act.

A minor child will generally earn little or no taxable income and therefore significant tax savings can be realized by shifting taxable income to minor children by loaning or transferring income producing property to them. The obvious downside is that the minor child must obtain control of the property. However, control can be circumvented by the use of an inter vivos trust.

Transferring capital gains income to a minor child can result in significant income tax savings.

Again, caution is advised and professional advice is recommended before transferring or loaning income producing property to a minor child.

The attribution rules do not apply to transfer of property to adult children or grandchildren. The general rule is that if an individual is prepared to transfer legal and beneficial ownership of property to another adult then they are prepared to forefo the associated taxable income of that property.

However, their are rules to be followed and professional advice is recommended.