Share Your Income Taxes
The key to tax planning is reducing the overall tax cost for you and your family. Under our current personal tax system, the more you earn, the more tax you pay. The simple solution would be to spread income among family members who are taxed at lower marginal rates. Unfortunately, the income attribution rules may prevent you from achieving this goal. With these rules, if you gift cash to your minor child who in turn invests that money and earns interest or dividend income, that income will be taxable to you regardless of whose name is on the account. If you gift to a spouse or common-law partner (hereinafter referred to as spouse), interest, dividends and capital gains earned will be taxable to you. However, there are a number of income splitting opportunities available, for example:

• There is no income attribution on a gift to an adult(other than a spouse). • Instead of a gift, loan money at the Canada Customs and Revenue Agency prescribed rate. As long as interest is paid annually there is no attribution. • Income on income, referred to as "second generation" income, is not subject to attribution. For example, if you give your child $10,000 and he earns $500 of interest income in the first year, you pay the income tax on those earnings. If the $500 is reinvested and earns $25, your child pays tax on this income, and you continue to pay tax on the income earned on your original gift. • Capital gains earned by a minor child are not subject to the attribution rules.

As you can see, there are ways to achieve income splitting among family members. Some of the best include contributing to an RESP for a child's education, contributing to a spousal RRSP for a lower-income spouse and splitting your entitlement to CPP/QPP with you spouse. For these and other tips, ask me for a brochure entitled Tax Tips for Investors.

Income Tax Reminders

• Looking to make charitable donations? Donate publicly traded securities, instead of cash, to take advantage of the lower capital gains rate on the disposition. • Saving for your child's education? Contribute to a Registered Education Savings Plan and receive a government grant of up to 20 per cent of your contribution. • Getting a tax refund? Ask your employer about reduced income tax withholdings. • Paying taxes by instalment? Pay your final instalment by December 15th to avoid non-deductible interest charges. • Buying mutual funds in December? Speak to me about deferring the purchase until January to avoid having to pay tax on year-end distributions. • Splitting income with your spouse? If you have loaned money to your spouse for investment purposes, ensure interest is paid to you by January 30 to avoid income attribution. • Contributing to an RRSP? Consider a spousal RRSP for income splitting in retirement. Our team would be happy to introduce you

to other types of tax effective strategies;

please contact Mike McPhillips at

416-359-4266 or via e-mail mcphillipsdurkin@nbpcd.com. The comments included in this publication are not intended to be a definitive analysis of tax law. The comments contained herein are general in nature and professional advice regarding an individual's particular tax position should be obtained in respect of any person's specific circumstances.