Tax Advice for Canadians

This is a general summary of tax planning tips for Canadians. Consult your tax advisor about your own tax situation.

Tips for couples

1. Take advantage of the Pension Income Credit by having at least $1,000 of pension income for you and your spouse. If one of you doesn't have a pension, buy a life annuity or open a RRIF. The income qualifies for the credit.
   
    
2. If you don't need the money, base the minimum required payment from your RRIF on your spouse's age if he or she is younger. Minimums rise as you get older. The less you need to take from your RRIF every year, the less tax you'll pay and the more your investments will continue to grow.

3. The Old Age Security pension. It's taxable, just like your other sources of income, and the government will claw it back if you make over a certain amount. There are strategies available that may allow you to reduce your income, reducing the chance of being in the claw-back range.
   
    
4. Don't take your CPP/QPP payment until you need it. You can collect your CPP/QPP at age 65 or as early as age 60; or defer your payments to as late as age 70. If you don't really need the income, having a payment early on will reduce your benefit in later years when you may need it more.
   
    
5. If you and your spouse are at least 60 years old you may consider sharing the CPP/QPP pension with each other. The pension earned during your marriage can be split equally, allowing you to take advantage of income splitting in retirement. This means a portion of the pension income may be transferred from the high income spouse to the low income spouse.

6. Choose your non-registered investments wisely. Interest income and foreign income are taxed at your regular tax rate. Dividend income has an applicable dividend tax credit. Capital gains have the most preferential tax treatment.
   
    
7. Draw income from your non-registered investments before registered. This keeps more of your registered money in a tax-deferred status. Another solution may be to take income from both to keep a moderate tax situation.
   
    
8. Buy life insurance to cover taxes and other costs after you die.

9. Plan for the tax consequences of stock option, deferred compensation and restricted stock. If these are paid during the first year of retirement your taxes can be significant. Spreading them out over a number of years may leave you with less tax to pay.

10. Take only what you need, remembering that there is a required minimum you must take. Income tax is only payable on the money you withdraw. The longer you leave it in, the more time it has to grow tax-free.
    
     
11. Withdraw your money at the end of the year. Doing so keeps your money sheltered for as long as possible.
    
     
12. Leave the first withdrawal from your RRIF until the end of the year after you convert from your RRSP. This also gives it more time to grow tax-free.

13. Take a look at your wills, trusts and powers of attorney assignments to make sure everything still works for you when you're retired.
    
     
14. Make sure you've named a beneficiary wherever possible.

15. Make sure that all your life insurance and tax-sheltered plans have a designated beneficiary.
    
     
16. Life insurance death benefits are not subject to tax unless the estate is designated as the beneficiary.
    
     
17. Assets in a tax-sheltered plan can to a surviving spouse and sometimes to a dependent child or grandchild without them paying tax.
    
     
18. Use alternate ways to transfer property to your children or grandchildren:
    Gift your property during your lifetime. Cash gifts are not usually subject to taxation. Coin collections, stocks, property etc may have income tax consequences.
    
     
19. Buy a life insurance policy to cover capital gains taxes on vacation properties or to cover other taxes that might arise.

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