Net More Income, Pay Less Tax - December 2004

Throughout your lifetime, the amount of income you earn will inevitably be reduced by the amount of taxes you pay. However, proper planning before and after you retire can substantially lessen your tax burden and provide you with more net income.

Before retirement, taxes can be reduced and/or deferred using RSPs, dividend income, capital gains, RESPs and insurance products.

For couples, splitting investments will ensure both partners have similar income streams in retirement, resulting in lower combined taxes. A couple who earns $30,000 each will pay much less tax than if one spouse earned very little income while the other earned the entire $60,000.

A spousal RSP is one such income splitting strategy wherein the higher-income spouse contributes to a plan in the name of the lower-income spouse instead of, or in addition to his or her own registered plan. The contributor gets the tax deduction, but the income belongs to the spouse.

In the case of non-registered assets, properly planned ownership can reduce taxes for years. Loaning your spouse money for the purpose of investing at current low rates is yet another form of income splitting that lowers taxes.

Planning income and identifying strategies for minimizing taxes doesn't stop when you stop working. In fact, since financial resources often decline following retirement, it is extremely important to find solutions to preserve and enhance the assets you've spent a lifetime accumulating.

Issues such as whether to use registered or non-registered assets for income first must be planned and will depend on other sources of income. Those under the age of 65 have additional considerations and should be aware of solutions that, when put in place early in retirement, will help avoid clawbacks, as well as loss of the age exemptions tax credit and other government benefits.

Income and tax planning solutions are available at every age and stage of life, but the earlier you implement a plan, the more options you will have. Speak to your Rice Financial representative today to ensure your current and future income is planned to provide the most net income for the longest time possible.