# low income - so many questions!



## Saniokca (Sep 5, 2009)

I am trying to figure out the best way to take advantage of the fact that in 2017 my wife's income will be low. Apologies if my thoughts are a bit all over the place...

I am looking to trigger capital gains in wife's non-registered account to take advantage of wife's low income this year. I would also like to buy the stocks in my TFSA/RRSP.

Let's say I do the following:
Non-Reg: sell 100 shares of *X* that were bought for $20,000 and are now worth $26,276.
TFSA: buy 100 shares of *X*

The Non-Reg is a joint account however 100% of the money is attributable to my wife (this is how the dividends will be reported as well). It was set up this way so that the money is not trapped/probated/etc. in case of death. The TFSA account where the shares will be repurchased is in my name.

*Question 1:* would CRA have any issues with the above? I think CRA doesn't like "artificial losses" but the above is a gain.

The 2017 gross income will be:
EI = $3,222
RRSP withdrawal = $2,000 (small account I'd like to cash in)
50% of gain from selling employer stock = $3,275
50% from selling X = $3,138
Total income = *$11,635* 

*Question 2:* Based on the 2017 tax calculator on EY.com there is no tax on income up to $11,635. Is this correct or am I missing something?

*Question 3:* Based on the 2017 tax calculator the tax rates for the first 3 brackets are below. Are these right (it seems odd that it goes up then down)?
$0-$11,635: 0%
$11,636 - $14,824: 15%
$14,825 - $19,478: 25.1%
$19,479-42,201: 20.05%

*Question 4:* Let's say I have more than 100 shares of X and the total gain from selling is $34,000. Is my tax payable calculation correct?
50% of 34k is 17k
$3,138 would trigger no tax
$3,188 would trigger 15% tax ($14,824 less $11,636)
$4,653 would trigger 25.1% tax
$6,021 would trigger 20.05% tax
So total tax would be *2,853*.

*Question 5:* I expect the 2018 and 2019 incomes to be zero. Would you wait in that case and spread out the gains or do it now as only 50% of the gains are taxed (could go up when the budget is announced)?


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## mordko (Jan 23, 2016)

Don't see why the taxman would have any issues. One thing to keep in mind is that the 12k at zero tax are transferable to you. Whichever is your highest rate, your tax saving would be 11.6k * x%, but only if she does not use this allowance. 

It may still make sense to realize the gains, but its something you need to take into account.


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## OptsyEagle (Nov 29, 2009)

In question 3 you are only recording federal tax rates and not including provincial tax rates. They are significant so you should go find out what they are in whatever province you are in. Because of this question 4 is also wrong.

In question 2 you are not quite correct. The $11,600 is your personal tax exemption and yes a person does not pay tax with taxable incomes below that level. The error that you made is that both you and your wife get a personal exemption and if one of you does not use it, that tax savings is given to the other. So although your wife does not pay tax on the $11,600 of income, you will pay about $2,300 more in tax by losing your spousal tax credit (the amount of your wife's personal exemption credit she did not use).

So in effect, every nickel of income your wife earns will be taxable to either her or you in some form.


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## OnlyMyOpinion (Sep 1, 2013)

Saniokca said:


> ...*Question 2:* Based on the 2017 tax calculator on EY.com there is no tax on income up to $11,635. Is this correct or am I missing something?


I'm not sure what your calculator link refers to? I suggest you try the taxtips calculator. It is pretty robust for what-if scenarios, considers spousal impacts and is easy to use. It is at: http://www.taxtips.ca/calculators/canadian-tax/canadian-tax-calculator.htm


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## Nerd Investor (Nov 3, 2015)

OptsyEagle said:


> In question 3 you are only recording federal tax rates and not including provincial tax rates. They are significant so you should go find out what they are in whatever province you are in. Because of this question 4 is also wrong.
> 
> In question 2 you are not quite correct. The $11,600 is your personal tax exemption and yes a person does not pay tax with taxable incomes below that level. The error that you made is that both you and your wife get a personal exemption and if one of you does not use it, that tax savings is given to the other. So although your wife does not pay tax on the $11,600 of income, you will pay about $2,300 more in tax by losing your spousal tax credit (the amount of your wife's personal exemption credit she did not use).
> 
> So in effect, every nickel of income your wife earns will be taxable to either her or you in some form.


I think he is including provincial, looks like Ontario rates. I just don't know what's going on with your 3rd bracket at 25.1%. In effect, it should be 20.05% all the way up to the $42K less the federal and provincial tax credit everyone is entitled to. 

The point OE made is bang on. Although your wife will pay no tax on the first $11,635 of income you will lose the tax credit in the same proportion that she would otherwise pay. Your plan still makes sense however if you expect your wife to have more substantial income in the future.


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## Saniokca (Sep 5, 2009)

mordko said:


> Don't see why the taxman would have any issues. One thing to keep in mind is that the 12k at zero tax are transferable to you. Whichever is your highest rate, your tax saving would be 11.6k * x%, but only if she does not use this allowance.
> 
> It may still make sense to realize the gains, but its something you need to take into account.


Thanks mordko.

Hmm I didn't know about this... I thought it's the benefit that the conservatives started and was taken away recently. Is that a separate thing?

In essence the EI and sale of employer stock already happened so she will have an income of at least $6,497 which leaves $5,139 of income I could use for myself. Is the rate I apply federal or provincial as well? If it's both it would be around 30% which means $1,542 tax savings.

I think since I missed out this year it may be best to realize all gains I can and to use her "zero" income next year to transfer the credit to myself. By the way what about eligible dividends? Are they counted towards $11,636? Based on the info I see they are taxed at 0% up to $45,916.

I should have mentioned that we live in Ontario. I am taking all the figures from http://www.ey.com/ca/en/services/tax/tax-calculators-2017-personal-tax


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## Saniokca (Sep 5, 2009)

OptsyEagle said:


> In question 3 you are only recording federal tax rates and not including provincial tax rates. They are significant so you should go find out what they are in whatever province you are in. Because of this question 4 is also wrong.
> 
> In question 2 you are not quite correct. The $11,600 is your personal tax exemption and yes a person does not pay tax with taxable incomes below that level. The error that you made is that both you and your wife get a personal exemption and if one of you does not use it, that tax savings is given to the other. So although your wife does not pay tax on the $11,600 of income, you will pay about $2,300 more in tax by losing your spousal tax credit (the amount of your wife's personal exemption credit she did not use).
> 
> So in effect, every nickel of income your wife earns will be taxable to either her or you in some form.


Thanks OptsyEagle.

I think the EY calculator does include the provincial rates. We are in Ontario. I didn't know about that credit... You live and you learn.


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## Saniokca (Sep 5, 2009)

OnlyMyOpinion said:


> I'm not sure what your calculator link refers to? I suggest you try the taxtips calculator. It is pretty robust for what-if scenarios, considers spousal impacts and is easy to use. It is at: http://www.taxtips.ca/calculators/canadian-tax/canadian-tax-calculator.htm


Thanks OnlyMyOpinion - I'll try this one - seems better than the one I'm using.


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## mordko (Jan 23, 2016)

1. No; the benefit that was taken away was a separate allowance for children. The $12K allowance is still transferable. 

2. Yes, the tax saving will apply to both provincial and federal taxes at your marginal rate. 

3. The eligible dividend credit is also transferable. 

You need to run a couple of scenarios and to figure out which strategy works best.

Note that I am not an accountant and that any advice you get on the web should be taken with a pinch of salt.


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## Saniokca (Sep 5, 2009)

Nerd Investor said:


> I think he is including provincial, looks like Ontario rates. I just don't know what's going on with your 3rd bracket at 25.1%. In effect, it should be 20.05% all the way up to the $42K less the federal and provincial tax credit everyone is entitled to.


Right, that's why I asked this question - it didn't seem right that the marginal rates are higher for the lower income interval.



Nerd Investor said:


> The point OE made is bang on. Although your wife will pay no tax on the first $11,635 of income you will lose the tax credit in the same proportion that she would otherwise pay. Your plan still makes sense however if you expect your wife to have more substantial income in the future.


I don't expect her to have any income (aside from dividends) for the next few years (at least 2-3 but more likely 4-6).

Thanks for your comments!


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## Nerd Investor (Nov 3, 2015)

mordko said:


> 1. No; the benefit that was taken away was a separate allowance for children. The $12K allowance is still transferable.
> 
> 2. Yes, the tax saving will apply to both provincial and federal taxes at your marginal rate.
> 
> ...


Just one point of clarification, the $12K you're referring to won't apply at his marginal rates like a deduction would, it applies at the lowest tax bracket rates (ie: 20.05%).


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## Saniokca (Sep 5, 2009)

mordko said:


> 3. The eligible dividend credit is also transferable.
> 
> You need to run a couple of scenarios and to figure out which strategy works best.
> 
> Note that I am not an accountant and that any advice you get on the web should be taken with a pinch of salt.


That's interesting... So if I earn 10k in dividends this year I could transfer them to her and pay no taxes? Does it go towards the 11,636? If it does I would rather pay the taxes on the dividends and use the allowance towards my marginal rate.



mordko said:


> You need to run a couple of scenarios and to figure out which strategy works best.
> 
> Note that I am not an accountant and that any advice you get on the web should be taken with a pinch of salt.


Yes I'll do that and I do double check the advice. I had no idea about the allowance - advice given here points me in the right direction so it's very valuable.


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## Saniokca (Sep 5, 2009)

Nerd Investor said:


> Just one point of clarification, the $12K you're referring to won't apply at his marginal rates like a deduction would, it applies at the lowest tax bracket rates (ie: 20.05%).


Looks like there is disagreement on this one - from other posts I thought it applies at my marginal rate.


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## mordko (Jan 23, 2016)

NI is probably correct; I may have got it wrong.


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## OptsyEagle (Nov 29, 2009)

Tax credits are fixed amount benefits, equal to around 20% savings on the credit. It is tax deductions that provide benefits equal to your marginal tax rates.

The ones we are talking about here are personal exemption TAX CREDIT and the spousal TAX CREDIT. So yes, NI has it correct.


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## Saniokca (Sep 5, 2009)

I just called the CRA - the credit can be transferred to the spouse and the lowest rate (15% federally plus 5.05% for Ontario).

I also confirmed that they have no issues with my plan regarding triggering the cap gains and repurchasing the stocks immediately in other accounts.


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## Eclectic12 (Oct 20, 2010)

Saniokca said:


> ... The 2017 gross income will be:
> EI = $3,222
> *RRSP withdrawal = $2,000* (small account I'd like to cash in) ...


You probably already know this but the wording is unclear.

If it is her income the RRSP withdrawal is to be recorded as then the RRSP has to be her individual RRSP (watch out for account withdrawal fees) or a spousal RRSP that neither has contributed to for years.

http://www.moneysense.ca/columns/super-saver/the-facts-on-spousal-rrsp-withdrawals/


Cheers


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