Canadian Tax Strategy

[Phoenix]

Before spending hours pouring over tax forms and doing what-if senarios, I thought I would post here and see if anyone has already gone through this hoop. Any Canadian-based responses are appreciated.

I am 62, all assets (except owned home) are in registered RRSP's. I am drawing early CPP. My wife will turn 60 in September this year and will also draw early CPP and has assets in registered RRSP's.

I have been hesitant to convert into any RIF yet, so the $2k pension income deduction is not available. It appears I would have to put about $65K into a RIF to draw the minimum $2k out and utilize the deduction to be tax-neutral on the $2k. I am also considering the income splitting advantages of income drawn from RIF's.

The question for now regards proportioning about $60K per annum income from our respective accounts, mine is 4-5 times as large as hers. Would it be better to draw all/most from my accounts and claim her as a dependant (within the maximum income limit to still qualify as a dependant) or split draws from RRSP's to somewhat equalize tax brackets (say draw on mine to put me near the upper end of one bracket then take the rest from hers to get the best combination of tax brackets)?

All informed replies appreciated.

 

[Meadbh]

Welcome to the forum, Phoenix. Being single, I am not well versed in the details of spousal tax, particularly as it is galling to me that married people have such a significant advantage over single people with income splitting, pension splitting, etc.

Here is one relevant reference for you:

TaxTips.ca - Spousal RRSPs and RRIFs, and attribution rules regarding withdrawals

You may also wish to explore the Canadian Money Forum and the Financial Webring Forum, both good Canadian financial sites.

Meadbh

 

[obgyn65]

Welcome to the forum.

 

[Ed_The_Gypsy]

Welcome, Phoenix.

Your question is very Canada-specific. I worked many years in Canada but our situations are different and I don't have your answer.

I do think that income-splitting only works with earned income, but not sure.

If you don't get an answer on our board, try Financial Webring, a very good Canadian board: http://www.financialwebring.org/forum/index.php?sid=f8653f4bf817d3d253acf8dc384abf54

Bon chance, mon ami!

 

[rodiy2k]

Hi Phoenix
I am married to Canadian citizen with permanent residency status. I also lived in Alberta for 6 years and had Canadian residency status; Unless someone is a Canadian with a very similar situation, my best advice is utilize the services of a good cross-border tax agency. We have been back in the USA for 5 years; my wife has about 100K in an RRSP; as such, we have to fill out all the appropriate forms every year and report Canadian cost basis in the event we sell something in the RRSP as well as indicating our election to defer accrued and unpaid earnings for Federal and California tax; Our taxes wind up being almost 50 pages long and our situation is not even complicated. Face it, the US government is an enormous pain in the ass but I know of many horror stories of couples that lost large parts of their RRSP/RIF to IRS lawsuits because they did not report everything appropriately. I can give you the name of my guy but I'm a newbie so not sure if that is permissible.

 

[Meadbh]

rodiy2k, can you explain why the OP would benefit from consulting with a cross border tax agency? AFAIK no international issues were mentioned in the original post.

 

[rodiy2k]

rodiy2k, can you explain why the OP would benefit from consulting with a cross border tax agency? AFAIK no international issues were mentioned in the original post.

Because my assumption is this person lives in America which means unless thy snowbird and don't stay more than 180 days per year they have a US tax liability. Canadian citizens can't just live in America and not have a US tax liability. Green card holders file the same returns as everyone else and non resident aliens need to ensure they follow the tax rules carefully. I guess i should ask their tax status first. As I said only a Canadian citizen with the same situation could possibly answer this question with any degree of reliability.

 

[REWahoo]

Because my assumption is this person lives in America ...

From the OP's profile:

About Phoenix

Gender: Male
State: Ontario, Canada

 

[rodiy2k]

Well first of all Ontario is not a state nor does that tell me the poster's tax status. Forgive me; I just joined this forum yesterday and have not had time to explore every aspect. I do know that taxes are complicated for Canadians living in the US. So my apologies for misunderstanding that this person lives in Canada. The correct answer would then be that I am not qualified to answer the question nor are you unless you are Canadian or have some special knowledge of Income splitting as it applies to a RIF.

 

[Meadbh]

I am Canadian. Also, see posts #2 and 4.

 

[REWahoo]

The correct answer would then be that I am not qualified to answer the question nor are you unless you are Canadian or have some special knowledge of Income splitting as it applies to a RIF.

That's precisely why I didn't reply.

 

[rodiy2k]

Sorry. I should have read the entire thread first. Sometimes that is hard if it long

 

[Meadbh]

No problem rodiy2k. And welcome to the board.

12 posts is not a long thread, and your first post to this thread was only the fifth. If you are up to it, below is a link to the longest thread on the board, which currently has over 11,000 posts and should keep you going for a while!

http://www.early-retirement.org/forums/f29/what-did-you-do-today-37868.html

 

[ScottishCanadian]

You need to conduct your own tax planning to maximize your net income.

I will start you off, regarding a pension amount deduction, RRIF won't work under 65 unless death of spouse. You can claim the pension amount if you have registered pension plan income at any age. There are limited benefits until you reach 65 YOA. Read a tax book and structure your finances to best use available strategies.

Pension splitting,

company pension anytime (no limits)
RRIF 65+
RRSP annuity 65+
CPP both partners at least 60



Scottish Canadian

 

[Milton]

Because my assumption is this person lives in America

That should not be assumed. There are many non-Americans on this board.

You are entirely correct that the IRS makes life complicated for Canadians living in the US, or Americans living elsewhere.

To respond to the OP's question: unless you get an answer here that seems pretty knowledgeable, if I were you I'd pay a few bucks and consult a CA who does lots of individual tax returns. He or she will be up on all the ins and outs of RRIFS and should have no trouble providing a reliable answer. Alternatively, send your enquiry to MoneySaver magazine and perhaps they will publish it together with free advice.