Tax Strategies

Tax Minimization Strategy

The adage that nothing is certain but death and taxes is actually not quite correct. Death remains everyone’s destiny, but some taxes can be postponed for one’s entire life or shifted beyond one’s life to people in whose hands actual amounts payable to the government may be negligible. Taxes can also be minimized by investments that postpone amounts payable, investments in assets that have relatively low tax rates, income splitting with a spouse or children, and changes like income or how business is organized. What is required to achieve these tax savings is careful control of investments, employment income, and bonuses to achieve income averaging where possible and, for investments, cash flow shifting where it is lawful. None of the following discussion of tax management presumes or suggests actions that are not in compliance with Canadian tax law.

Let’s look at tax management for the individual taxpayer with a list of the easiest things almost anyone can do to cut a tax bill:

1. Use RRSP space to reduce current taxes.
2. Use a spousal plan to split RRSP income.
3. Average CPP benefits.
4. Split income with children through a Registered Education Savings Plan.
5. Have the higher-income spouse pay household expenses.
6. Employ spouse or children.
7. Loan money to a lower-income spouse to invest.
8. Create a corporation to carry on an active business.
9. Blend interest into the sale price of an asset.
10. Reinvest interest income in common stock or preferred shares…
11. Use life insurance to convert a growing body of money into the property of family members.
12. Invest in devices, such as tax-efficient mutual funds or natural resource income trusts…
13. Buy convertible bonds that allow a switch from income-producing interest coupons to common shares…
14. Make sure children with earned income file a tax return.
15. Claim medical expenses proficiently.
16. Make a vow of perpetual poverty.
17. Split pension income with your spouse or common-law partner.
18. Save receipts for your children’s physical activity programs.
19. Realize losses to offset gains.
20. Contribute to a Tax-Free Savings Account.
21. Gift public company shares to a charity.
22. Registered Disability Savings Plan.