Pension income splitting can help you pay less tax

The introduction of income splitting was one of those rare moves where the government made it easier for us by relieving our tax burdens.

It redirects income within a family to take advantage of the lower tax brackets, deductions and credits available to each family member.

New rules introduced in 2006 state that you can transfer up to 50% of your eligible pension benefits from the higher earner to the lower earner.

This could help in reducing the OAS claw-back and more than likely reduce your total tax bill.

As an example, assume an individual is in his or her top marginal tax bracket. By transferring benefits to a spouse or common law partner, it may be possible to get below that bracket.

At the same time, the spouse or common law partner will pay a lower tax on the amount transferred than the higher earner would have done had it not been transferred.

If the transferee does not have an eligible pension, this transfer likely will allow him or her to access the $2,000 pension amount non refundable tax credit that otherwise would not be available.

For more information on the pension amount click on the Canada Revenue Agency link below:-

Click here for CRA link

So don't be passive or apathetic as far as your taxes go.

Remember, it's not a moral duty to pay tax, but it is a legal requirement to fill out a tax return as an earner and pay tax if indicated.

You owe it to yourself and to your family to reduce your taxes to the lowest possible amount by whatever legal means available to you.

A close look at these strategies involving pensions is a great way to start.