Pension Income Splitting

Each January and February, there is a flurry of television, radio, and online advertisements and phone calls and e-mails from financial advisers and financial institutions encouraging Canadians to contribute to a registered retirement savings plan (RRSP) or a tax free savings account (TFSA). One thing you won’t see in all that activity is promotions or incentives to split pension income. In fact, the mention of such a tax-planning strategy will likely draw a blank look from most Canadians.

The reason that nobody is promoting pension income splitting is that it’s one of those rare tax-planning strategies which benefits absolutely no one but the taxpayer who uses it. In some cases, like RRSP or TFSA contributions (and likely soon, the benefits of pooled registered pension plans, or PRPPs), financial institutions explain and promote the benefits of such plans because it represents increased business for them. In other cases, the government advertises or promotes programs which advance economic policy objectives, like investments in lagging sectors of the economy or depressed areas, or which further social policy goals. But pension income splitting remains a relatively unknown tax planning strategy.

That’s unfortunate for a couple of reasons. First, the splitting of pension income can provide significant tax savings to those able to utilize it—those people generally being older taxpayers who in many cases are living on a fixed income and can really benefit from the tax savings received, especially in the current low interest rate environment. Second, unless you’re getting good tax planning advice, it’s very easy to overlook pension income splitting as a way of reducing your tax burden. The only references to pension income splitting on the annual return are two entries, one on line 116 and the other on line 210 and, unless you are already aware of the significance of those entries, there’s really nothing to alert you to it. The Income Tax and Benefit Guide provides very little in the way of explanation and no indication at all of the benefits which may be obtained. In addition, the form which must be filed with the return to effect a pension income splitting strategy (Form T1032) isn’t part of the standard tax return package provided to taxpayers by the Canada Revenue Agency (CRA); taxpayers must obtain it separately.

The general rule is that taxpayers receiving private pension income (including a pension received from a former employer and, where the recipient taxpayer is over the age of 65, payments from an RRSP or a registered retirement income fund) are entitled to split up to half that income with a spouse for tax purposes. (Government source pension income, like payments from the Canada Pension Plan or Old Age Security payments do not qualify for pension income splitting). A number of the provinces have also indicated that they will adopt the federal rules for provincial tax purposes.

The mechanics of pension income splitting are relatively simple. There is no need transfer any funds between spouses or to make any change in the actual payment or receipt of qualifying pension amounts, and no need to notify the pension plan administrator. In addition, the decision of whether and to what extent to split pension income for tax purposes does not have to be made until the return for the year is being completed. Taxpayers who wish to split eligible pension income received by either of them must each file Form T1032, Joint Election to Split Pension Income, with their annual tax return.

For help with your tax return and pension income splitting call us in Bancroft, Belleville or Picton
613-332-2150 or 613-962-2151 or 613-476-2150

Commonly missed tax deductions 2012...

We are well into our tax season and keeping quite busy at that!
Still we're not too busy to bring some important reminders about your tax deductions for 2012.
To keep the list concise I want to bring to your attention some most commonly missed tax deductions, so here is a list.  Take a look and if you have so much as an inkling that you may qualify, call us right away.  We have the knowledge and experience to help you determine your eligibility for any credits you may be missing out on...

1. Always first on my list is the disability tax credit as I have helped many, many taxpayers recieve this credit and claim back up to ten years - resulting in many thousands of dollars of tax savings.  This to me is the single most misunderstood tax credit, and unfortunately those who miss out are also usually those who need these benefits the most!
2. Caregiver tax credit - goes hand in hand with the above.  A dependant child over 18 who qualifies for the disability tax credit and lives at home... means caregivers (often parents) can benefit from this tax credit. 
3. Carryforward credits from Canada Revenue Agency Notice of Assesment in prior year.... are far too often missed.  When I meet with a client, I always ask them to bring their prior tax year notice of assesment.  Often there are "goodies" there which we can use to reduce their tax payable or increase a refund amount.   Too often I see unused RSP contributions which could have provided valuable tax relief!
4. Last for this blog - but surely very important is the pension income splitting opportunity.  Too often I meet new clients who in the past have been "do-it-yourself" tax preparers or used out of the box tax software and did NOT get the maximum benefit of the pension split.  Maximum allowable does not equal maximum tax benefit...so misunderstood!  Our sophisticated software is designed to run through all the variables and determine the absolute maximum benefit in terms of taxes payable when determing amounts for income split.  This is another of those times when we refile tax returns from prior years to help new clients get their correct tax benefits.

So that does it for another blog...keep watching for more valuable tax news and tax tips...I'll try to get some in before April 30 filing deadline!  Always, you are welcome to phone me with questions...www.copebarrett.ca  for contact information, Belleville, Picton and Bancroft

Start saving now!

Tired of the same old revolving door approach to income tax preparation? Do you wonder if you are receiving all the tax benefits that are available to you? Our professional staff is trained and up-dated constantly to assure they know the latest in government tax credits and programs. You may be pleased with how that adds up for your next tax filing. Honest, reliable and efficient service makes your next tax return filing a pleasant event.
Send your tax information via email, post, courier or visit our Belleville, Picton or Bancroft office today. Contact us jfbarrett@copebarrett.ca

Don't miss out on those income tax deductions any more!

Income tax season is upon us and we are ready to assist you in getting the maximum tax benefits that you are entitled to. Below are two most commonly missed tax deductions to watch for. Keep your eye on my blog to see the remaining 8 of then top ten for 2012.

We all pay our fair share of tax and never should we pay more than our fair share. When deductions that we are entitled to claim are missed - then we are paying more than our fair share. Cope, Barrett & co, Certified General Accountants can help you to achieve the best and most fair tax filing. We think our income tax services are different than many - simply put WE CARE! It matters to us enough to take the time to really consider all the options available to our clients. We compare prior year claims, consider changes in your financial or personal position. We are often told by our clients that what makes us different from tax and accountants they have used in the past is that we actually TALK with them! Seems odd to me because talking with my client has always been the logical choice. Talking with clients has helped us notice things they may benefit from or changes that need to be adjusted for. Talking with clients helps me realize tax benefits they may be missing and that is very important to both of us.
Well back to the subject of this post - ten tax deductions you don't want to miss!...
1. Medical expenses...some are obvious like prescriptions, eyeglasses or dental fees. Often however people miss things like naturopath, massage, chiropractic, physiotherapy, medical travel and meals deduction, tutors, renovations for medical needs, costs of a van for wheelchair use, attendant care...oh this list is endless. When in doubt keep the reciept - and call me!

2. Disability Tax Credit... so misunderstood. This tax credit is available to those persons who struggle with day to day activity such as walking slowly, or extremely poor eyesight. Others may have chronic depression or need attendant care to assist with daily living. You do not have to be on a disability income to qualify, nor does receiving a disability income automatically qualify one for the tax credit! I have seen clients recieve thousands of dollars in tax refunds as they didn't realize this existed. Let's talk!
Reasons 3 and 4 coming in our next chat. Questions? Call me at 613-962-2151 or 613-476-2150