My 19-year-old daughter Laura had a taxing epiphany last summer. Fresh from her first couple of weeks at her summer job as a receptionist at a local hair salon, she waltzed in the front door, sat herself down at the kitchen table and ripped open the envelope holding her first paycheque. Her initial giddiness quickly turned to shock. She had worked 40 hours at $10 an hour. That totaled $400. But her paycheque amounted to only $344. Where was the rest of her money?
After a brief talk about how taxes work, I told her the good news—that our family was using several tax and income splitting strategies to make sure we weren't paying a dime more in tax than we had to. In fact, she was benefitting directly from one of our strategies: the Registered Education Savings Plan (RESP) that her dad and I set up to help her pay for university or college. With an RESP, I explained, she was not only the beneficiary of her parents' largesse, but also the government's—since the feds throw in an annual cash grant. Even better, when we withdrew that money, we would pay very little tax on it, because it would be taxed in her hands, not ours. Her reaction? Of course, she wanted to know more.
My experience with Laura reinforced how much interest there is out there among families who want to save on taxes and increase their net household income. Most of us are willing to pay the taxes we have to, but no one wants to overpay. The truth is, the tax man has carefully eliminated almost every loophole out there, so you should take full advantage of the very few strategies left to slash your tax bill. And one of the most effective is income splitting.
Slash your taxes
