# Easiest way to income split?



## Bustercluck (Jul 24, 2016)

With the recent changes in federal/alberta governments my tax needs have been grossly affected. I am in the 42% tax bracket and my wife does not work. My plan was to buy at least $10,000 in spousal rrsps, take them out in 12 months and move them to our tfsa. Is the spousal rrsp limit the same as my personal limit? If I take it out next year will I pay the lower tax amount for her income which will be $0? Could I do this every year, or do I have to leave all of the money in her rrsp account? It looks like I'll get an additional 8% in the form of child tax benefits for buying rrsps too.


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## Spudd (Oct 11, 2011)

The spousal RRSP limit is the same as your personal limit. However, if your wife withdraws from her spousal RRSP within 3 years of your contribution, the income will be attributed back to you instead of to her. Also, the RRSP room will be destroyed by doing this, so you would be limiting your future RRSP size.


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## FrugalTrader (Oct 13, 2008)

Have you maxed out both TFSA's yet? If your wife's TFSA hasn't been topped up, that's the easiest way to income split.


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## 0xCC (Jan 5, 2012)

Spudd said:


> The spousal RRSP limit is the same as your personal limit. However, if your wife withdraws from her spousal RRSP within 3 years of your contribution, the income will be attributed back to you instead of to her. Also, the RRSP room will be destroyed by doing this, so you would be limiting your future RRSP size.


Just to add a minor clarification to this, the rule is the withdrawal can take place 3 calendar years after the contribution. This means that a contribution made on any day in 2016 (up to Dec 31) will be able to be withdrawn on January 1, 2019 or later with taxes attributed to the spouse, not the person that made the contribution.



FrugalTrader said:


> Have you maxed out both TFSA's yet? If your wife's TFSA hasn't been topped up, that's the easiest way to income split.


This is also an excellent point but it doesn't give you a tax refund for the 2016 tax year. It just saves you taxes in the long run. Contributions to your wife's TFSA account can come from your income without any tax consequences.


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## agent99 (Sep 11, 2013)

Staring a small business and paying stay at home wife as an employee, plus claiming home office and other expenses, is another way to income split. Business does not have to show a profit (although should theoretically be capable of that eventually) Business owner can deduct business losses from other income. Wife will of course have to pay taxes on her new income, bat at lower rate.


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## Eclectic12 (Oct 20, 2010)

0xCC said:


> Just to add a minor clarification to this, the rule is the withdrawal can take place 3 calendar years after the contribution. This means that a contribution made on any day in 2016 (up to Dec 31) will be able to be withdrawn on January 1, 2019 or later with taxes attributed to the spouse, not the person that made the contribution ...


 .... +1.




0xCC said:


> This _[contributing to TFSA]_is also an excellent point but it doesn't give you a tax refund for the 2016 tax year ...


+1 again ... though a slightly different idea is that if one plans on the spousal RRSP for retirement a long time down the road, where there is a tax refund coming ... make the spousal RRSP contribution then use the tax refund to fill up the TFSA.

It means a smaller spousal RRSP but also means one has use of the tax refund in a Canadian tax free way. 

One can use it as one sees fit as it can fund future RRSP contributions, where it make sense (or living expenses or whatever). 




agent99 said:


> Staring a small business ... Business does not have to show a profit (although should theoretically be capable of that eventually) ...


From the posts I have read ... it is not so much "eventually" but within a set amount of time. 


> “Once you’ve reported losses for two or three years in a row on the same business or rental property, a little flag will go up on your tax return,” Cestnick said.


https://www.thestar.com/business/pe.../7_triggers_that_may_lead_to_a_tax_audit.html


Cheers


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## agent99 (Sep 11, 2013)

Eclectic12 said:


> From the posts I have read ... it is not so much "eventually" but within a set amount of time.
> 
> https://www.thestar.com/business/pe.../7_triggers_that_may_lead_to_a_tax_audit.html
> 
> ...



My post was based on a little more than reading a newspaper article  Practical experience!

Some more reading:
http://sbinfocanada.about.com/od/taxinfo/f/businessloss.htm
http://sbinfocanada.about.com/od/taxinfo/g/Profit-Test.htm


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## Eclectic12 (Oct 20, 2010)

Does the practical experience more consecutive years of running the business with no profit?
If so, interesting.

As for the links, I'm not sure what they are to demonstrate. When it says:


> Also note also that you cannot continue to write off business expenses against personal income year after year for many years.


Except for no time frame in years being attached ... it is pretty much the same message, is it not?

It seems the only question is how long before one's continually not profitable business attracts attention.


Cheers


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## agent99 (Sep 11, 2013)

Eclectic12 said:


> It seems the only question is how long before one's continually not profitable business attracts attention.
> 
> 
> Cheers


Thousands of Canadians use small businesses of all types as a means of reducing taxes. I added this to the list the OP could consider. It is a legitimate option. No further discussion needed. It is all here.
.


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## Bustercluck (Jul 24, 2016)

This is all good stuff. I think I'm going to go with the largest amount of spousal rrsps I can afford. It seems like quite a bit of paper work and added cost to start a business to lose money. If I start a business it would be to make as much as I could.


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## agent99 (Sep 11, 2013)

Bustercluck said:


> This is all good stuff. I think I'm going to go with the largest amount of spousal rrsps I can afford. It seems like quite a bit of paper work and added cost to start a business to lose money. If I start a business it would be to make as much as I could.


You can produce cash flow from a small business by making a profit and reducing taxes. This while still making an accounting loss by charging depreciation and expenses that you are already paying. But if paper work is a problem, probably not your thing! If there was an 'easy' way to split income, everyone would be doing it!


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## Bustercluck (Jul 24, 2016)

The paper work isn't an issue. I've had a small business before and I always tried to make $10,000-$12,000, because that was easy to blend in to my other income. Back then I was renting a house for added tax breaks, but it seemed like a lot of work for the benefits. I didn't know I could add my income into my business and call it a loss. What kind of home based businesses generate a little bit of income?


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## agent99 (Sep 11, 2013)

Bustercluck said:


> The paper work isn't an issue. I've had a small business before and I always tried to make $10,000-$12,000, because that was easy to blend in to my other income. Back then I was renting a house for added tax breaks, but it seemed like a lot of work for the benefits. I didn't know I could add my income into my business and call it a loss. What kind of home based businesses generate a little bit of income?


I don't believe rental properties can be used to create a loss. But almost any other type of business endeavor could. There are many web sites that offer guidance on how to start a home based business. Do a search. Best if it is something you or your spouse have some background, training or skills at. Just as one example, this might suit someone who loves pets: http://www.wikihow.com/Start-a-Pet-Sitting-Business. In our case, we turned a pastime into a business which at it's peak generated a 6 figure positive cash flow.


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## kostya (Jul 26, 2016)

The previously mentioned business income splitting is probably the most effective way for those who can work (at least partially) as self-employed. For those who only work full-time, spousal RRSP's seem to be the most popular, with either withdrawing according to rules or simply leaving it in the account and reaping benefits in the long run. 

Other technics, not so popular but that can be considered for many are: spousal loans to invest (do it properly and do the math first), transfer of assets (beware of attribution rules), pension benefits splitting. It sounds like you have kid(s), you can explore the option of gifting and transferring some income-generating assets to children (again do it properly), which in many cases can be more effective than transferring to a spouse due to differences in attribution rules. 

Get a good accountant if you don't have one already. Good accountants can help you with your taxes, they are worth your money and they can have additional suggestions based on your personal situation.


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## agent99 (Sep 11, 2013)

kostya said:


> pension benefits splitting.


That is something I forgot to mention. If a home business can be created with previously non-working spouse as an employee/manager, the spouse can generate CPP credits, possibly up the maximum which is at present about $13k/yr if he/she retires at 65.


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## Market Lost (Jul 27, 2016)

agent99 said:


> Staring a small business and paying stay at home wife as an employee, plus claiming home office and other expenses, is another way to income split. Business does not have to show a profit (although should theoretically be capable of that eventually) Business owner can deduct business losses from other income. Wife will of course have to pay taxes on her new income, bat at lower rate.


You should never start a business with the sole intent of lessening your income tax burden. I've seen enough people get burned by this one to urge caution, and people with incomes of $150K+ as this OP has are in the range where you get special attention. First off, you can't just pay your spouse out of your regular income because a business must be a separate entity. If you pay your spouse it must come out of the business, so if your business is losing money, then you can get a tax benefit, but anything else you expense is lost money, so what is the point? If you're plan is to pay your spouse enough to lose money, then you must justify the wage. You just can't simply pull out a magic number to lose money. You also can't use home office expenses to create or increase a loss, so that's not an option either.

You also have to realize that CRA doesn't just allow you to claim that you have a business because you say you have one. If you can't show an ability to make a profit then they have no issue in declaring your "business" a hobby, and then ignoring any revenues and expenses. Once they do this, the next step is they will go back in years to start denying your losses - not a pretty site.


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## agent99 (Sep 11, 2013)

Market Lost said:


> You should never start a business with the sole intent of lessening your income tax burden. I've seen enough people get burned by this one to urge caution, and people with incomes of $150K+ as this OP has are in the range where you get special attention. First off, you can't just pay your spouse out of your regular income because a business must be a separate entity. If you pay your spouse it must come out of the business, so if your business is losing money, then you can get a tax benefit, but anything else you expense is lost money, so what is the point? If you're plan is to pay your spouse enough to lose money, then you must justify the wage. You just can't simply pull out a magic number to lose money. You also can't use home office expenses to create or increase a loss, so that's not an option either.
> 
> You also have to realize that CRA doesn't just allow you to claim that you have a business because you say you have one. If you can't show an ability to make a profit then they have no issue in declaring your "business" a hobby, and then ignoring any revenues and expenses. Once they do this, the next step is they will go back in years to start denying your losses - not a pretty site.


Consider the object to be to increase after tax cash flow - not to lessen tax burden, although that might be part of reason cash flows increase! 

I see some inaccuracies above. Office expense whether home or otherwise CAN be used to increase a loss for a *business*. You may be thinking about home office expenses used by a work from home employee (e.g. as part of an employment contract.) 

You can just claim you have a business. But you do need to register the name, get an HST/GST number and a payroll number. Lot's of help with those at CRA and in other publications. If your business is a scam, then expect it to be disallowed. But why start a scam when there are so mnay legit opportunities out there!

There are always sceptics, but I doubt they have walked the walk. Others like ourselves have, and have benefited greatly by operating a small family business. Our business grew to the point where we should have moved it out of our home. But instead we added on to our home to provide the extra space required. Great not to have to GO to work every day, but then, we were AT work at lleast 12 hrs a day!


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## Market Lost (Jul 27, 2016)

agent99 said:


> Consider the object to be to increase after tax cash flow - not to lessen tax burden, although that might be part of reason cash flows increase!
> 
> I see some inaccuracies above. Office expense whether home or otherwise CAN be used to increase a loss for a *business*. You may be thinking about home office expenses used by a work from home employee (e.g. as part of an employment contract.)
> 
> ...


I'm not sure what inaccuracies you are seeing.

The only time I've seen anything mentioned as an "office expense" is when it refers to a home office. Any other time these expenses are placed under "Admin expenses". And home office expenses are not, as you seem to suggest, restricted to an employee who works at home. The same restriction goes for any person who uses their home as their primary office. This is why they are separated on any of the business and professional form, e.g. T2125.

You can claim you are 10 feet tall, too, but saying it doesn't make it true. Simply registering a business name, or even for an BN doesn't make it legitimate. Furthermore, I'm not talking about a scam, I'm talking about starting a business with the sole purpose of not making a profit - that's just a hobby. However, you don't need to register a business name, as long as it is your own name, and you only need to register for HST/GST if you earn more than $30K in any four consecutive quarters, or if you earn more than $30K in any single quarter.

It's a great thing to start a business to make money, but the post I quoted from you suggests that the OP does it to split income with his wife. This is not a legitimate reason to start a business, and CRA is well aware of this. If he starts a business and he makes money, then he will now have his full tax burden, plus his wife will have one, too. Of course, I'm never sure why people complain so much about the tax they owe. The only people that have tax problems are the ones who actually make good money.


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## agent99 (Sep 11, 2013)

Market Lost said:


> You can claim you are 10 feet tall, too, but saying it doesn't make it true.


You can do that too, but you would be wrong - again. I am not going to argue with you. Others with an interest could read this.



> *Question:* My business made no money this year. Can I still claim business expenses?
> 
> *Answer:*
> Maybe. If you are filing your income tax as a sole proprietor or partner, using the T1 tax return, when you are filling out Form T2125 (Statement of Business or Professional Activities), you will be listing various business expenses. If your business expenses exceed your business income, you will record a business loss on this form.
> ...


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## Market Lost (Jul 27, 2016)

agent99 said:


> You can do that too, but you would be wrong - again. I am not going to argue with you. Others with an interest could read this.


Just a bit of information for you, I was a CPA for 10 years, and did thousands of income tax returns, so it would be rather pointless to argue. Further, nothing in the article you link to goes against what I'm saying. In fact, it just reiterates what I state.


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