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:
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.
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.
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