• The Family Tax Cut Could Save you $2,000 in Tax

    The Family Tax Cut

    This new proposed tax break for young families could save you up to $2000 in tax. The basic concept is that a couple with young children may have one spouse in a higher tax bracket than the other spouse. That results in a higher tax paid by the family than the family with the same combined income but with both spouses in the same tax bracket.

    To be eligible the individual must:

    • be a Canadian resident at the end of the taxation year
    • have an eligible relation for the year
    • have a child under the age of 18 at the end of the year who ordinarily reisdes throughout the taxation year with the individual or the individual’s eligible relation; and
    • not be confinred to a prison or similar instution for 90 days or more in the year.


    This is a common question I get from owners of corporations.

    The answer depends on the person. Do you want CPP (Canada Pension Plan) when your retire? Do you want to invest in RRSPs? Are you disciplined enough to invest for retirement? Will your investments provide a better retirement income than CPP? Do you want to split income with a spouse or adult children going to a post-secondary school?

    If you take wages you will have to pay into CPP. As you are the employer and employee you will have to pay 9.9% up to $4851 towards CPP in 2014. Half is paid by the employer and half by the employee. Self-employed persons pay both portions.

    If you choose to only take dividends then there is no CPP to pay. You will also not increase your RRSP contribution room. Saving $4851 in CPP contributions also means you will not be adding to the CPP retirement amount. I recommend those that take this route put those savings into a TFSA to save for retirement. You need to be disciplined as you will not get the CPP payments when you retire. You can also invest inside the corporation. If you are not disciplined then wages may be a better choice.

    The average CPP retirement payments are $607.33 per month if you retire at age 65. The maximum is $1,038.33. Consult with a financial planner to determine your options and make sure your investments will exceed this amount.

    There are other strategies to be taken into consideration with tax planning. You can do a combination of things in your overall tax strategy. It is best to consult a financial planner for your particular situation. You need to put some money into retirement planning.

    Les Grajkowski

    Certified Financial Planner