Catherine McLean Journalistin/Texterin/Übersetzerin

Mapping out a family tax plan

October 14, 2009
The Globe and Mail

For many young couples, a tax plan is what they call those nerve-wracking, last-minute efforts to complete their returns before the taxman's deadline.

As far as they're concerned, there are much more pressing financial issues to deal with, whether it's funding ongoing studies, finding a better-paying job, saving for the down payment on a house, or getting ready for their first baby. The taxes can wait.

Anyway, it's not like they're missing out by not doing more thorough tax planning, right? Wrong, according to tax experts. Not taking full advantage of all the available tax benefits means dollars that could have stayed in their piggy bank are instead flowing to the taxman's coffers.

“I don't know that a lot spend a lot of time considering it,” says Cleo Hamel, a senior tax analyst at H&R Block based in Calgary.

There's no getting around the fact that tax planning is time consuming and well, boring. “It's slow and there's no quick fixes,” admits Joanne Magee, director of York University's School of Public Policy and Administration.

But it's a necessary evil if people want to get the most out of their hard-earned money. In that spirit, here's a list of ways that young couples can cut their tax bills without inducing a migraine.

Find the right employer

Employee benefits are usually factored in as part of the compensation package, but there's another way of looking at them: tax savings. The bottom line is you get more, whether it's money going towards education or healthcare, if the employer pays, according to Professor Magee.

“It's a characteristic of the tax system that the rules tend to be more generous with employer-provided benefits than they are if you have to pay for yourself,” she says.

Take health care, for example. Some companies pay for costly items that aren't covered by the government, like a visit to the dentist or stylish eyeglasses. But if the employee had to pay for these items herself, there are limits to what and how much she can claim for tax credits, according to Ms. Magee.

Another example is education grants. Some companies have a program where they pay the tuition when the children of their employees meet certain academic criteria and go to university or college. These payments are considered to be scholarships, and the income is taxed in the hands of the children, not the parents.

Remember to share

Couples should remember to take a co-operative approach when it comes to tax planning, tax experts say.

Many young couples, for example, find themselves in a situation where one spouse is working and the other is still going to school. In some cases, the student can transfer some of their tuition tax credits to their employed partner, helping to reduce their tax bill. Couples can also share credits for charitable donations and medical expenses, according to Ms. Hamel.

Another way for a couple to save taxes is by splitting their income. For example, if one spouse is the bigger earner, they can pay for all of the household expenses and let their partner invest most of their paycheque. Or they can contribute to their spouse's RRSP. Either way, the income from those investments will be taxed in their partner's lower income bracket.

Save your money

What does saving pennies have to do with cutting taxes? Everything. The government doesn't mail out a cheque to young couples each year to put away in the bank for retirement or their child's education. Instead, it reduces or defers their tax bill if they put their hard-earned wages into a Registered Retirement Savings Plan (RRSP), a Registered Education Savings Plan (RESP), or a Tax-Free Savings Account (TFSA).

“The biggest issue for young couples is they're really not thinking about retirement because there's too many things they want to do,” Ms. Hamel said. “They want to get the house, they're planning on having children along the way, and maybe they want to have a vacation once a year or upgrade their vehicle.”

But save they must, the tax experts agree. By contributing to an RRSP, they can directly reduce their taxable income and defer any future gains on that money until they withdraw it in the future. As well, couples can each draw on $25,000 of those funds to buy their first home. (It won't be treated as taxable income, but over time they will have to repay the withdrawn funds to their RRSP accounts).

With an RESP, the government kicks in a certain grant in addition to an individual's contribution and the income is taxed in their child's hands when they go off to university. Finally, any income or capital gain from money that goes into a TFSA isn't taxed.

Remember the little things

Young couples should check out smaller tax-saving areas because they can really add up.

For example, families who just had a baby should tell the taxman because they're entitled to a taxable Universal Child Care Benefit of $100 per month, and in some cases other child-related benefits. When children participate in sporting programs, the family can claim tax credits of up to $500 for each kid. Other credits are available for childcare, first-time home-buyers, and transit passes.

“Every little bit helps,” Ms. Hamel says.