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Mastering Family Tax Filing Opportunities

A key element in minimizing taxes and maximizing wealth for a family is learning to think about tax planning from the perspective of the family unit as a whole rather than from the perspective of the individual family members. This is more complicated than it seems because in general we tax individual income in Canada; there is no joint filing of returns. Yet, there are provisions that allow for income splitting between spouses, sharing of certain tax deductions and credits, and the comparison of family net income for the purposes of leveraging refundable and non-refundable tax credits. In short, the Canadian tax system is a hybrid of provisions for individuals and family units. You really need to know the ropes to master your opportunities.

The process of maximizing your opportunity for a higher gross pay each month begins with vigilance over your tax withholdings. In addition, as income rises, eligibility for refundable tax credits like the Child Tax Benefit, or social benefits like the Old Age Security can be "clawed back". The former is based on family net income, the latter on individual net income. Therefore, we need to keep an eye on the size of net income - line 236 of the tax return - for all adults in the family. This begins with the filing of your annual tax return.

To file family tax returns most advantageously takes a specific methodology you may not be familiar with. You will want to:

Prepare each return separately to the individual's best tax benefit, starting with the lowest income earner and working your way up. Look at the results on each return from a family, rather than ­individual, point of view. Tweak the returns, to claim the best tax results for the family unit as a whole, maximizing transferrable options for income, deductions, and credits. Make decisions about acquiring tax-reducing investments - most commonly RRSPs - to reduce net income of some or all family members, so that you can benefit from more of the provisions available to you from CRA.

Following are some examples of provisions that may be split or transferred between spouses, providing for greater tax-efficiency for the family unit. Discuss these with your tax professional every year, especially if things have changed in your personal life, to make sure you are claiming all benefits you are entitled to, as a family.

• Income
• Retirement benefits from the Canada Pension Plan
• Periodic payments from company-sponsored retirement benefits or superannuation
• Dividends, if the transfer results in an increased tax credit for your spouse
• Salary or wages for assistance with certain employment income sources and as an employee or contractor to a proprietorship
• Deductions
• Contributions to spousal RRSPs
• Moving expenses
• Child care costs under certain circumstances
• Northern residents deductions
• Federal non-refundable credits
• Pension income amount
• Age amount for those who have reached age 65 in the year
• Amount (credit) for child under 18
• Children's fitness amount
• Public transit amount
• Adoption amount
• Tuition, education and textbook amounts
• Disability amount
• Caregiver amount
• Amount for infirm dependants over 18
• Medical expenses
• Charitable donations
• Political contributions
• Federal refundable credits
• Most refundable tax credits can be claimed by either spouse and are based on net family income. Federally these include the Child Tax Benefit, GST Credit, and the Working Income Tax Benefit. Some provinces feature provincial refundable credits too.

If you find you have missed using any of these provisions in past returns, you can go back and recover missed refunds due to your errors or omissions. That's important, because knowing you have maximized all your tax compliance provisions will position you to master your real wealth accumulations with larger after-tax dollars.