Why Succession Planning is Key for Your Business

What is a Family Office?

by BlogEstate PlanningFinancialFinancial PlanningGovernance
Why Succession Planning is Key for Your Business

A family office is a private wealth management company that caters exclusively to ultra-high-net-worth families. These offices are designed to address the unique financial needs and challenges faced by affluent families and provide them with an all-encompassing solution for managing their wealth. The services offered by family offices can range from investment management, tax planning, estate planning, philanthropic planning, family education, multi-generational planning, and lifestyle management services.

Managing the Complexity of Family Wealth

Successfully managing family wealth is a complex endeavour, and each family’s circumstance is unique. It is the responsibility of the family wealth manager to bring professionalism to the private work of growing and safeguarding a family’s assets for the foreseeable future. At the heart of effective family office administration is the expert navigation of several crucial areas. Below are four of these areas that often play a role in managing complex family wealth.

  • Investment Management: This is the cornerstone for accumulating and preserving wealth, which necessitates a customized approach that takes into account the family’s risk tolerance, financial objectives, and core values.
  • Risk Management: A vital component that requires cautious consideration. This typically involves  diversifying investment portfolios, monitoring market trends, and employing advanced risk management techniques. When families proactively protect their assets, they obtain peace of mind, knowing that their wealth is well-protected.
  • Financial Planning: Essential to the administration of a family office, this provides an all-encompassing view of the family’s financial situation. This often involves implementing tax planning strategies that minimize liabilities and maximize wealth preservation, thereby ensuring that financial resources are utilized efficiently to support goals and aspirations.

Estate Planning: This is a critical aspect of the family office that cannot be overlooked. A thorough estate plan that reflects the family’s intentions, minimizes tax implications, and protects the family’s legacy for future generations can be organized with the help of legal professionals.

The Family Office, Governance Structure, and Family Wealth

A governance structure refers to the framework, processes, and mechanisms put in place to effectively manage and oversee the family’s wealth, assets, and related decision-making. It outlines the rules, responsibilities, and procedures that guide how the family’s wealth is controlled, protected, and distributed across generations. It is crucial for the successful management of family wealth and preservation of the family enterprise. 

Family offices play a vital role in establishing and maintaining this governance structure, which often includes a governing board comprising of family members and independent, non-family members. Having a governing board not only ensures the efficient functioning of the family office but also provides a platform for addressing sensitive issues, fostering collaboration, and making informed decisions to the benefit of the family wealth. Moreover, it helps in promoting transparency, accountability, and adherence to the family’s vision and strategy.

Family Office Services: Beyond Wealth Management

Finally, family offices offer a myriad of services that go beyond traditional wealth management. These services are carefully tailored to the specific needs and preferences of each family. Being able to cater to the unique aspects of ultra-high-net-worth families is critical to ensure the larger vision and transfer of the family legacy succeeds. Family office services often include, but are not limited to:

  • Investment Strategy and Management: Formulating and implementing a customized investment strategy that aligns with the family’s risk tolerance, goals, and values.
  • Tax Planning: Providing guidance and strategies to minimize tax liabilities and optimize wealth preservation.
  • Estate Planning: Ensuring smooth and tax-efficient transfer of wealth to future generations while preserving the family’s legacy.
  • Philanthropic Planning: Assisting families in identifying and fulfilling their philanthropic objectives by establishing foundations, endowments, or other charitable vehicles.
  • Family Education & Multi-Generational Planning: Preparing the rising generation for wealth stewardship along with fostering a sense of responsibility and shared values across generations.
  • Lifestyle Management Services: Catering to various non-financial aspects of a family’s life, such as private schooling, travel arrangements, household management, and security.

Entrusting your family’s wealth, vision, and legacy requires a family office that values integrity and trust. A family office committed to building a relationship with you and your family over time is how you will achieve confidence in your and your family’s future.

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Beacon Family Office at Assante Financial Management Ltd. has a reputation for its unwavering commitment to ethical practices, client satisfaction, and dedication to building relationships through transparent conversations. Connect with Beacon Family Office today for a conversation and discover the peace of mind that comes from connecting with a trusted advisor.

5 Things to Teach Your Kids About Taxes Early

5 Things to Teach Your Kids About Taxes Early

by FinancialFinancial Planning

There will come a time when your kids ask you how babies are made, why the sky is blue, and why they have to come home by curfew. One thing your kids probably won’t ask is about taxes — or at least not until it’s too late. It’s important to teach your kids about taxes early so they can be well prepared to file their returns and to create an efficient tax strategy. Not sure where to begin? Start with these 5 things every child should know about taxes.

Where Taxes Go

Taxes are a strange topic for children to understand because they can’t see where the money goes.  All they see is how much money is being deducted on their sales receipts or pay stubs, so they often struggle to understand the purpose of taxation. To best explain it, discuss the places and services where taxes are used for, such as for maintenance and upkeep of local parks, playgrounds, hospitals, roads, bridges, and schools. This will help them understand why taxes are essential and what they are used for without getting too technical.

The Different Types of Taxes

Children also struggle to grasp the different types of taxes that need to be paid. To help them become more familiar with the tax process, we recommend providing examples of all the various types of Canadian taxes, like the federal, provincial, and municipal government taxes on your income statement, the sales tax on a receipt, property tax on your assessment, and the tax to move goods across the border if you’ve ordered anything overseas. That way they can see exactly how tax is deducted and get a better sense of what to expect as they grow older and need to manage their taxes on their own.

The Impact on Earnings

It’s also a good idea to teach your kids about how taxes will impact their take-home pay before they receive their first pay stub. This will help prevent them from being caught off guard once they get their first paycheque and notice that it’s less than their hourly rate. Also, show them how to calculate all the deductions, so they know how to inspect their pay stubs in case of accounting errors.

All About Refunds, Payments, and Returns

When you’re working on filing taxes for your teenager, it’s also a great time to teach them about the process. Show your kids how to fill out the income tax return by using their paycheques and income report so they can get a clear view into the filing requirements. In addition, explain what happens if they underpay/overpay and what kind of tax breaks/penalties they could encounter.

Explaining taxes to your child is the easy part. Understanding all the tax implications when your child is a dependent, or when the Kiddie Tax applies, and what family tax breaks are available, can often be very confusing. Fortunately, with smart tax planning and a tax optimization strategy, you can increase your personal wealth and keep more money in your pocket. When you’re ready to improve your tax management strategy, contact us at The Beacon Group of Assante Financial Management Ltd. We know the ins and outs and how they can be applied to minimize the effects of taxation for you and your family.

What to Teach Your 18-Year old About Opening a TFSA

What to Teach Your 18-Year old About Opening a TFSA

by FinancialFinancial PlanningInvestment Planning

It’s not easy getting your teen interested in the idea of investing in their future. Most teens have a shorter attention span and are rarely focused on long-term goals — they’re thinking about the present. This can make it somewhat difficult to explain the benefits of saving, especially if most of the financial terms go straight over their head.

If your teen has turned 18, it’s time to start teaching them about TFSAs. 18 is the age when Canadians can begin opening and using TFSAs, and with compounding interest, it’s wise for them to start early and do just that.

With the right words and some guidance, you can help them grow a future nest egg as they ease into adulthood. But where to begin? Here are five things you can teach your 18-year old today about opening a TFSA.

The Art of Compounding

If you start early, the power of compounding can add up to millions of dollars over the long-term. If that won’t get your teen’s attention, nothing will. Once they are interested in what you have to say, that’s when you shock them with the long-term benefits of a TFSA. The best way to make them understand is to show them a real-life example of how much money they can expect to earn in 20, 30, 40, and even 50 years when they start making small contributions each month, starting now. When they see the power of compounding in action, it’s sure to get them excited about forming a long-term strategy that invests heavily in their future.

The Benefit of Tax Savings

It’s unlikely that your teen knows much about taxes or how they will impact their savings over time (and if they do, great for them!). That’s why now is the best time to teach them about tax-sheltered instruments, like a TFSA. They may not fully understand all the tax jargon in relation to capital gains, interest earned, or Canadian dividends. Hone in on the fact that with a TFSA, they can withdraw their money tax-free — unlike the majority of banking accounts. They’ll appreciate the idea of avoiding fees and having more money in their pockets.

How to Maximize Contributions Without Penalties

Accidentally contributing more than $5500 a year may result in penalties. It’s essential to teach your 18-year old about the maximum contributions and how they can add to their account without acquiring fees. For instance, if they were to contribute the full $5500 in one year, they could have to wait a full calendar year before putting more money into the account. Your teen can contribute to their TFSA for every year that they have been at least 18 since 2009, as illustrated here. An example of this would be if you have a son who turned 18 in 2016 and is just opening a TFSA now, he would actually be eligible to contribute $16,500 right away.

How to Be Smart With Their Money

Unlike an RRSP, money can be withdrawn from TFSA at any time without paying taxes. This could be a concern if you invest in your teen’s savings account and they withdraw the money straight away. That’s why it’s important to teach them how to be smart with their money, why a long-term goal is better than short-term gains, and that a TFSA is an investment tool more than a savings account.  You may even consider teaching them how to use their TFSA to purchase mutual funds, GICs, and other investment accounts to help grow their money, not just save it. The more they know now, the better choices they will make in the future.

If you’re not sure how to discuss TFSAs with your teen, we can help. At The Beacon Group of Assante Financial Management Ltd., we manage not only our client’s wealth plans but also their children’s investments too. We can teach them the benefits of long-term objectives and what the right choices are for investments with a particular goal in mind. To learn more about our family wealth planning, contact us today.

5 Common Investing Mistakes

5 Common Investing Mistakes

by FinancialFinancial PlanningInvestment Planning

Protecting your wealth is arguably more important than growing it. Even if you make smart investment decisions, pay yourself first, and put some money away for your retirement, there are still a number of common investing mistakes that could drain your finances dry. Don’t waste your hard-earned money on poor financial decisions — be prepared for success by avoiding these common investing mistakes.

Not Funding a Retirement Plan

As a Canadian, you have access to a number of retirement plan options, whether through your employer or through the bank. One of the biggest mistakes many people make is not setting up a plan in advance and adding the maximum amount to it every year. Why is this important? Because most retirement plans are tax-sheltered, so you can protect your money until after you retire and your tax rate declines. Besides the tax advantages, you might also be eligible for a match program with your employer. Some will match your contributions which is essentially free money (that will steadily grow over time).

Forgetting to Rebalance

One mistake most investors make is forgetting to rebalance their portfolio back to its target asset allocation annually. Without a routine check-up and rebalance, your asset classes could end up overweight or underweight, neither of which is a good thing for your performance. If this sounds familiar, contact a financial advisor to help get the proper allocation to increase your overall expected return.

Doing it All Yourself

Unless you have industry experience in trade and finance, it’s best to get a helping hand from a seasoned professional. An experienced financial advisor can help you understand all the relevant risks to you and your portfolio, including what the appropriate benchmarks are, which asset allocation will achieve your goals, and how to diversify for steady long-term gains.

Not Planning for the Long Term

Short selling and day trading can make you a lot of money, but it can also gut out your entire savings if the market takes an unexpected swing. Instead of chasing performance and focusing on short-term gains, you should create a long-term plan and stick to it. Having a sound investment plan is not as much fun as playing the market, but it’s much more profitable in the long run.

Not Creating an Investment Strategy

Investing is not just about growing your assets, it’s also about using cost-efficient structures and tax planning to keep more of your money. Without an investment strategy, you could essentially be missing out on much of your opportunity for growth. Therefore, successful investors are ones that ensure they operate under a prudent investment strategy — the best plans are not only ones that offer significant growth opportunities but also help to shelter against taxes and minimize risk along the way. Always remember that each individual will need a strategy that fits within their goals — no approach will work for every investor.

When you’re ready to move forward with an investment strategy that’s tailored to your specific needs, contact us at The Beacon Group of Assante Financial Management Ltd. We’ll create a plan and implement strategies by choosing the best-in-class products and services that will excel through the market’s ups and downs, creating long-lasting wealth for you.

5 Methods to Determine Your Retirement Savings Goals

5 Methods to Determine Your Retirement Savings Goals

by FinancialFinancial Planning

Do you know how much you need to save for retirement? Most people don’t. Fortunately, there are a few questions you can ask yourself to determine what retirement savings goals you need to implement today to have a brighter future tomorrow. Don’t worry if you’re far from ready; we’ll also explain what you can do to give your savings a well-needed boost.

What are Your Current Expenses?

One method to determine your retirement savings goals is to find out how much you’ll realistically need for retirement. As a rule of thumb, each person should have one year’s salary saved for every three years of income. To figure out this number, you’ll need to identify your individual expenses, like food, transportation, healthcare, mortgage and debt expenses, and then adjust your strategy to ensure you can afford the lifestyle you desire. Remember — it’s always better to save too much than too little!

How Long Have You Been Investing?

If you’ve been taking advantage of compounding interest for decades, it’s likely that you will have a significant nest egg brewing in the wings. However, if you only started investing a few years back, it’s unlikely that you’ll have much saved once you retire. Depending on how many years you have left, you’ll either need to invest more aggressively or rely on your pension, social security, and RRSP more heavily. Either way, talking to a financial advisor can ensure you’re on the right track no matter how many years you have to go until you retire.

Have You Been Maxing Out Your RRSP Contributions?

Not everyone can afford to max out on their RRSP contributions every year, but if you have done so, you’ll likely be well positioned for retirement. Every little bit counts, so if you can start adding more to your RRSP today, it’s wise to do so. Any money you contribute now will be tax sheltered until you withdraw it in retirement, providing you with some extra income.  

Do You Have an Employee Retirement Plan?

If your company has a retirement plan in place, you’ll have to save less on your own. This is because each month a specific dollar amount will be deducted from your account and automatically deposited into your RRSP. Even better, if your employer offers a match program, you’ll get dollar-to-dollar contributions from your company for every dollar you put in. That’s free money!

Do You Have any Other Sources of Equity?

Investing isn’t the only way to boost your retirement savings. If you have a Life Insurance plan or income property, it can easily be sold for equity when you retire. Another popular way to access money for your retirement is through a reverse mortgage. A reverse loan pays you each month by accessing some of the equity in your home. It’s only available to help retirees who have accumulated wealth in their home to cover basic monthly living expenses.

Most Canadians do not have enough money saved by the time they retire, and it’s often not because they couldn’t save enough, but rather because they didn’t have a retirement plan in place. To help prepare you and your family better for retirement, contact us at The Beacon Group of Assante Financial Management Ltd. We’ll help you get the maximum return on your investments, reduce your risk level, create a tax strategy that works for you, and ensure that you have the most amount of money possible so that you can fully enjoy your retirement.

5 Key Pieces of Effective Tax Optimization

5 Key Pieces of Effective Tax Optimization

by BusinessFinancialFinancial PlanningTax Planning

There’s one thing that you can’t avoid no matter how hard you try, and that’s taxes. Tax adherence is a responsibility of every Canadian citizen, no matter how much money you make or what type of work you do. While you can never escape taxes entirely, you can take advantage of methods made to minimize them to reduce the burden on you and your family.

If you’re looking for ways to reduce the amount of tax you pay out to the government throughout your years, review these five components of effective tax optimization and keep them in mind for the future.

Income Optimization

There are a number of income optimization methods that you can utilize to help minimize your taxes. For one, you can engage in income splitting with your spouse to transfer the tax liability from the higher-income earner to the lower one. You can’t legally “split” your income amounts per se, but there are a number of ways to utilize this strategy without penalty such as: creating a spousal loan, contributing to a spousal RRSP, or establishing a family trust.

Tax Efficient Investments

There are a number of registered accounts that you can take advantage of to defer your taxes into the future. If you’ve maxed out on your limits, you need to find other places to shelter your money. An expert financial consultant can help you maximize your tax-efficient investments most effectively by strategically distributing your income and investments across your RRSPs, RRIFs, TFSAs, and a number of other tax-sheltered options like your life insurance policy.

Business Management

One tax efficiency strategy that can help you keep as much of your income as possible is expense management. Learning how to claim expenses correctly can increase your tax efficiency and reduce both your personal and corporate tax bill. Corporate clients can also take advantage of optimizing salaries and dividends, estate freezes, and other advanced methods to minimize taxes.

Tax Deductions

Another effective way to reduce taxes is to take advantage of all the possible deductions and credits on your income tax and benefit return. Deductions, such as retirement and CPP contributions, moving expenses, child care expenses, support payments, student loan interest, and tuition expenses can all be claimed for tax credits. In fact, there are over 90 deductions and tax credits that you can claim in Canada that will put more money back into your pocket each year.

Investment Strategies

Higher net worth Canadians that have a lot of money tied up in investments will often find that the tax on the interest can become substantial if they don’t have a proper strategy in place. A professional advisor can provide you with a number of strategies that can reduce your capital gains and lower your investment taxes to optimize your returns.

A professional and experienced financial advisor can work out the most effective strategy for your personal and corporate tax optimization. Their expertise ensures that your finances will adhere to the newest regulations and follow all legal practices to avoid penalties and unlawful misconduct.

Our experts at The Beacon Group of Assante Financial Management Ltd. will enjoy crafting the best tax strategy for your particular needs to ensure that the best approach is taken to enhance your success.

Getting Back on Track with Your Savings

Getting Back on Track with Your Savings

by FinancialFinancial Planning

We all have things we’d like to save for – whether it’s an addition to the home, a retirement plan, or post-secondary education for the kids. Reaching these goals can be a complicated and challenging process. Often, we get a little off track with our savings and need some help to get them back under control. If this rings true to you and you feel like it’s time to re-visit your savings plan, check out these 5 ways you can start getting back on track with your savings today.

Create a Savings Strategy

Once you know what your financial goal is, it’s important that you create a savings strategy. First, figure out how much you want to save each month to reach your goal, and then decide on what the deadline is to achieve your goal. By dividing the total amount you need to save by the number of months that it will take to complete your goal, you will get the total of how much you need to save each month. If the amount looks too high, you should look at your expenses to see if you can find ways to save more money. A financial planner can help you find better tools and ways to reach your goal without burdening your lifestyle.

Review Your Options

There are plenty more options to save money than just through a savings account. Saving tools like Registered Retirement Savings Plans (RRSP), Tax-Free Savings Plans (TFSA), and Guaranteed Investment Certificates (GIC), are just three of the most popular methods available in Canada to help you save. By talking to a professional advisor, you can get the guidance you need to help make a decision that is right for your financial goals.

Track Your Expenses

Once you have a detailed strategy and savings plan in place, you need to start tracking your expenses. By tracking how you spend your money like your monthly bills, entertainment, and lifestyle expenses, you will be able to see more clearly where you spend the most money. This will, in turn, help you find ways to trim down your expenses and free up money for your savings, like cutting back on eating out or switching to a more affordable gym membership.

Pay More Than Just Credit

With credit being easy to obtain, many people have gotten away from the habit of saving and instead, focus only on paying back their credit. Without any money in savings, you are just living off of debt. To get back on track with your savings, you need to put a proper payment strategy in place for both your credit accounts and your savings accounts. One method is to set up an automatic payment to your savings account, so you are paying a little bit each month, instead of just paying your credit back. You will be surprised at how fast it adds up.

Look For Better Deals

If you’re spending too much on your insurance, mortgage, and bank fees, you could be losing out on saving opportunities. To find better deals, hire a professional advisor who can look through all your expenses and help determine what better options are available to you. A new bank account, re-financed mortgage, or new insurance policy can help you to free up some of your money for your savings accounts.

When your savings need to be resurrected from the dead, talk to us at The Beacon Group of Assante Financial Management Ltd. Our professional advisors can help you better organize your expenses and get your savings back on the right track.

5 Ways to be Sure You are Making the Right Investment Choice

5 Ways to be Sure You are Making the Right Investment Choice

by FinancialFinancial PlanningInvestment PlanningRisk Management

When you want to make your money grow you first need to learn how to invest properly. The fact is that thousands of Canadians lose money on investments each year by not taking the time to understand their investment strategy. Having a solid investment plan in play, you need to take the right steps and inquire with the right people who can advise you. To get on the right track with your investments, check out these 5 ways to be sure you are making the right investment choice right from the get-go.

Know Your Goal

You will never be able to know if you’re on the right track of making the best investment choice if you don’t know what your goals are. For instance, are you investing for extra retirement security, income, or growth? Do you want to invest for the short-term, mid-term, or long-term? Your answers to these questions can help form your financial plan and strategy that will be in sync with your goals. Thus, any decisions you make should be in sync with your strategy in order to keep you on the right path.

Be Realistic

Being realistic about how much money you have to invest will help you make better investment choices. For instance, if you have a hefty sum of money to invest you will naturally have more investment options available to you, and can easily diversify. If you only have a small amount of money, you should start slow and begin transferring monthly amounts to your investments that you can actually afford. If you’re not realistic you can get yourself into money issues quickly, so talk to an advisor on how to build your portfolio with what you can afford.

Do the Research

Hearing from a friend about a “good stock to buy” often leads to costly regrets. Before you invest, learn as much as you can about stocks, bonds, mutual funds, and all the investment instruments out there. Take the time to understand the jargon and terms, the types of investments available to you, what investments are better for short and long-term, and educate yourself about the financial markets. The more you know, the better prepared you are, and the more likely you will make the right investment choice to see your money grow.

Know the Risks Involved

It’s no surprise that all investments come with some degree of risk. But some investments are much riskier than others. You are more likely to make a sound investment decision if you are aware of the risks that a particular investment can entail, and have the capacity to absorb any potential risk you may experience.

Get Advice from a Professional

Investments are complex to understand and trade. If you don’t know what you’re doing, you could lose money. Talking to a professional for advice on what investment tools are best for your financial condition, is the best way to ensure you’re making the right investment choices for you. Even the savviest traders have financial mentors and work with other professionals to help them get the most out of their investments.

When you need some expert advice, talk to us at The Beacon Group of Assante Financial Management Ltd. Our team of business professionals can guide you in your investment decision and help you understand what financial strategies are best suited to you.

Maximizing Tax Deductions as a Parent

Maximizing Tax Deductions as a Parent

by FinancialFinancial PlanningTax Planning

As a parent in modern society, it can be difficult to make ends meet given how low the Canadian dollar is and the multitude of expenses related to raising a child. However, there are several ways to minimize tax deductions and make life easier for yourself, your spouse, and your children. Here’s how to do it.

Apply for Benefits

When tax time rolls around, fill out the RC66 Canada Child Benefits Application. This used to enable parents to apply for the Canada Child Benefit (CCB), which was worth a maximum of $6,400 annually per child 6 years old or under, and $5,400 per year for each child between 6 and 17 (note that these amounts reduced when family net income exceeds $30,000). However, the Canada Child Tax Benefit (CCTB), the National Child Benefit Supplement (NCBS), and the Universal Child Care Benefit (UCCB) replaced the CCB in 2016. This means that CCB does not to be applied nor is taxable, but adjustments can be requested. You may also apply for the Child Disability Benefit (CDB) if applicable. Parents have the option of registering online as well, or even upon registering a birth. The biological mother is considered the primary caregiver, so all social benefits are directed to her, but the lower-income parent must report the income on their return regardless. Same-sex parents are permitted to designate a primary caregiver in their application to ensure that they are eligible for benefits, also.

Claim Expenses

Fees and expenses paid for by parents for child care while at work, school, or during research need to be claimed to help create comprehensive and accurate tax-deductible figures so long as the child is under 16 years old sometime during the year (this rule doesn’t apply to children with disabilities, however). The more that you include, the likelier it will be that these deductions will decrease in size. Then, attach Form T778 Child Care Expenses Deduction to your return, bearing in mind that the lower-income partner is required to claim expenses unless if enrolled in studies, suffering a long-term illness, imprisoned, or separated.

Claim Credits

While adding expenses to your forms, be sure to include those that could be credited upon your return. Children’s Fitness, Disability, and Family Caregiver amounts are examples of creditable expenditures. For sports (refundable) and arts (non-refundable) program fees, up to $500 and $250 per child under 16 (18 if disabled) can be claimed, respectively. To transfer a child’s Disability Amount to your return, use line 316 of the federal worksheet to ensure accurate calculation, followed by line 318 to calculate how much can be transferred to you, followed by entering the total on line 318 of Schedule 1. To claim the Family Caregiver Amount if your child has a long-term illness or is infirm but not necessarily disabled, include a signed doctor’s statement that details when the illness or impairment began, its expected duration, and that it makes the child depend more on personal assistance than children of their age group. Enter the number of children you are claiming for in box 352 and multiply by $2,121, then claim the calculated result on line 367.

With these adjustments applied to yours and your spouse’s return (if applicable), you can expect a decrease in tax payments and a higher payout than usual from the CRA. If you require detailed information or guidance or would like to discuss further tax planning strategies, The Beacon Group of Assante Financial Management Ltd. is ready to lend a helping hand.

Understanding Pension Splitting

Understanding Pension Splitting

by FinancialFinancial PlanningInvestment Planning

Since its inception in 2007, pension splitting has enabled taxpayers in a common-law relationship or marriage to split eligible pension income with a spouse, provided they meet all requirements. A useful way of saving on taxes and mitigating credit erosion, pension splitting allows for couples to work together to create a more sound and secure future.

The Basics

Two spouses or common-law partners both residing in Canada at the end of the taxation year are able to jointly elect to split eligible pension income. Each taxpayer files CRA Form T1032 – Joint Election to Split Pension Income with their individual returns. This means that it isn’t split at source, unlike CPP sharing (when possible). One spouse can claim up to 50% of reported income, and their partner can claim a like amount. Pension splitting is subject to proration depending on changes in marital status or death, and unique elections can be made annually.

Qualifying Sources of Income

There are several sources of income eligible for pension splitting. Those aged 65 or older on December 31 of a given tax year can allocate up to 50% of qualifying income to a spouse of any age. Additionally, amounts may be paid out of RCA payments in the form of life annuities (not exceeding $102,005.40 for 2017), as well as RPPs and retroactive lump-sum payments. Taxable RRIF payments to the annuitant and/or a beneficiary also qualify, including those from locked-in plans. However, bear in mind that RRSP withdrawals do not qualify and, as a result, if an amount has rolled over to an RRSP, the RRIF or annuity can’t be split. There are many more qualifying and disqualifying sources of income, and it is recommended to consult the CRA’s list for further information.

The Advantages of Pension Splitting

The biggest benefit is that if the spouse being allocated the income is in a lower tax bracket, overall income tax savings rise dramatically. Additionally, only income qualifying for the $2000 pension credit is eligible for splitting, which means that generating income qualifying for it will save even more tax. Spouses receiving allocated amounts may also be eligible to claim this credit in certain circumstances. Another advantage of pension splitting is that it minimizes or even eliminates the erosion of the age credit, which is normally reduced once a taxpayer’s net income exceeds a threshold amount ($36,430 in 2017). The same rules apply for Old Age Security (OAS), which is also better protected against reduction.

Pension splitting enables for retirees to worry less about scraping to make ends meet, thanks to its ability to reduce taxes and raise credits while protecting against erosion. If you and your spouse or common-law partner are considering pension splitting, The Beacon Group of Assante Financial Management Ltd. can help clarify whether or not it is a viable option, and discuss this and other retirement planning strategies.