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Investment Income Attribution
Income splitting is an effective tax planning tool to take advantage of the different marginal personal income tax rates at different income levels. By splitting income amongst individual family members, tax savings results by taking advantage of multiple lower personal tax bracket rates. Click HERE for tax rates at various personal income levels.
A common income splitting technique is to take income earned by dependents or a lower income spouse and invest it in the names of the dependents or lower income spouse. Any income earned would be taxable in the dependents or lower income spouse's hands. However, if done incorrectly, the Attribution Rules will apply. Click HERE for a discussion of Attribution.
Some Common Problems
Often times the income will be commingled with the income of the higher income taxpayer. Then every once in a while the higher income taxpayer will take some of the commingled funds and invest it in the name of the dependent or lower income spouse. In these cases, it is likely CRA will deny the income splitting and apply the Attribution Rules. There must be a clear trail between the income of the dependent or lower income spouse and the invested funds. For example, family allowance cheques should be deposited directly into the dependent's bank account and not commingled with a parent's funds. Similarly, any income earned by a lower income spouse should be directly invested in that spouse's name, not commingled with the funds of the higher income spouse.
Click HERE for more discussion on Tax Planning to avoid Attribution.
Click HERE for a discussion on attribution involving corporations.
Careful planning with a Chartered Accountant is warranted. Contact Keith Anderson CA at (780) 447-5830 if you need advice.
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