Couples should familiarize themselves with the ABCs of the federal and provincial tax system so they can choose the best tax strategy. To get a clearer picture, consult the capsule entitled Life as a Couple: Using the Tax System to Your Advantage by Flash Retirement, one of Retraite Québec’s partners.
The capsule explains that the system is made up of tax brackets: tax rates vary based on income, with the first $11 635 not being subject to tax. For example, for an annual income of $12 000, only the amount exceeding $365 is taxable.
The taxation system makes it possible for couples to reduce the amount of their taxes. The idea is to balance the income of both spouses so that they end up paying less tax, especially when their individual incomes differ greatly: they would pay less tax on two incomes of $25 000 than they would on one of $50 000.
One of the most common strategies for reducing income tax is to contribute to an RRSP for the spouse with the lower income.
If you are receiving a retirement pension under the Québec Pension Plan, you and your spouse can also reduce the amount of your income taxes by sharing your retirement pension.
Some conditions apply, but the good news is that it isn’t necessary for both of you to have contributed to the Plan, provided you are both over age 60. De facto spouses can also file an application with Retraite Québec and enjoy the benefits of pension sharing.
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| Other tax measures, such as pension income splitting at the federal level, could apply to your situation. Visit the Canada Revenue Agency and the Revenu Québec websites for further information. |
You now likely better understand why many people use the various tax strategies available to them. The tax system not only benefits your couple by providing ways of reducing your income taxes, but also allows you to be more financially independent.
