Missed In All The Fuss.

The biggest fuss in Canadian financial politics lately has been the repeal of tax exempt status for income trusts. But at the same time, a little tax-saving nugget for seniors has been glossed over.

Income splitting has long been a contentious issue for many tax payers. The issue of who gets taxed for what in a couple's income can amount to thousands of dollars in taxes. This issue get quite serious for seniors where, in many cases, one partner has been earning the majority of the income. If one partner has a large pension and the other very little income, the majority of their joint income will be taxed in the hands of the person making the largest income. Here's an example:

Let's say Jim is 65 years old and has a pensionable earning of $75,000. Jan has earnings of $10,000. Their joint tax would be around $17,000. But under the new income splitting rules for items that are eligible for the pension deduction, Jim could assign up to 60% of this income to be taxed in the hands of Jan. This would lower Jim's tax brackets and the total saving would be around $4,000.

Okay, before you run to your calculators, this is a very rough example but it does indicate just what is at stake here. This is quite a bit of tax money.

Please be aware that this legislation is not yet passed and will not kick in until 2007. Also, remember that we are dealing with a minority government and who knows if it will ever get passed into law. Time will tell.

More Tax Goodies

The Canadian finance minister, Jim Flaherty, has announced that a new "economic statement" will be coming on November 23rd and has hinted at new tax cuts. As soon as we have more info, we will be publishing it here. Stay tuned or even better, you can subscribe by RSS feed or email to this blog and get notified of updates.